87000 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 433, 438, 447, and 456 

[CMS–2482–F] 

RIN 0938–AT82 

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 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), Department 

of Health and Human Services (HHS). 

ACTION: Final rule. 

SUMMARY: This final rule will advance 

CMS’ efforts to support state flexibility 

to enter into innovative value-based 

purchasing arrangements (VBPs) with 

manufacturers, and to provide 

manufacturers with regulatory support 

to enter into VBPs with payers, 

including Medicaid. To ensure that the 

regulatory framework is sufficient to 

support such arrangements and to 

promote transparency, flexibility, and 

innovation in drug pricing without 

undue administrative burden, we are 

finalizing new regulatory policies and 

clarifying certain already established 

policies to assist manufacturers and 

states in participating in VBPs in a 

manner that is consistent with the law 

and maintains the integrity of the 

Medicaid Drug Rebate Program (MDRP). 

This final rule also revises regulations 

regarding: Authorized generic sales 

when manufacturers calculate average 

manufacturer price (AMP) for the brand 

name drug; pharmacy benefit managers 

(PBM) accumulator programs and their 

impact on AMP and best price when 

manufacturer-sponsored assistance is 

not passed through to the patient; state 

and manufacturer reporting 

requirements to the MDRP; new 

Medicaid Drug Utilization Review 

(DUR) provisions designed to reduce 

opioid related fraud, misuse and abuse; 

the definitions of CMS-authorized 

supplemental rebate agreement, line 

extension, new formulation, oral solid 

dosage form, single source drug, 

multiple source drug, innovator 

multiple source drug for purposes of the 

MDRP; payments for prescription drugs 

under the Medicaid program; and 

coordination of benefits (COB) and third 

party liability (TPL) rules related to the 

special treatment of certain types of care 

and payment in Medicaid and 

Children’s Health Insurance Program 

(CHIP). 

DATES: These regulations are effective 

on March 1, 2021, except for 

amendatory instructions 7, 10.a., 14, 16, 

and 17, which are effective on January 

1, 2022, and amendatory instructions 9 

and 11, which are effective on January 

1, 2023. 

FOR FURTHER INFORMATION CONTACT: 

Ruth Blatt, (410) 786–1767, for issues 

related to the definition of line 

extension, new formulation, oral solid 

dosage form, single source drug, 

multiple source drug, and innovator 

multiple source drug. 

Cathy Sturgill, (410) 786–3345, for 

issues related to third party liability. 

Michael Forman, (410) 786–2666, and 

Whitney Swears, (410) 786–6543 for 

issues related to drug utilization review. 

Christine Hinds, (410) 786–4578, for 

issues related to value-based 

purchasing. 

Joanne Meneeley, (410) 786–1361, for 

issues related to State Drug Utilization 

Data (SDUD) certification. 

Christine Hinds, (410) 786–4578, for 

issues related to authorized generics and 

inflation rebates. 

Charlotte Amponsah, (410) 786–1092, 

for issues related to manufacturersponsored patient assistance programs. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Under the Medicaid program, states 

may provide coverage of prescribed 

drugs as an optional benefit under 

section 1905(a)(12) of the Social 

Security Act (the Act). Section 1903(a) 

of the Act provides for federal financial 

participation (FFP) in state expenditures 

for these drugs. In the case of a state that 

provides for medical assistance for 

covered outpatient drugs (CODs), as 

provided under section 1902(a)(54) of 

the Act, the state must comply with the 

requirements of section 1927 of the Act. 

Section 1927 of the Act governs the 

MDRP and payment for CODs, which 

are defined in section 1927(k)(2) of the 

Act. In general, for payment to be made 

available for CODs under section 

1903(a) of the Act, manufacturers must 

enter into a National Drug Rebate 

Agreement (NDRA) as set forth in 

section 1927(a) of the Act. See also 

section 1903(i)(10) of the Act. The 

MDRP is authorized under section 1927 

of the Act, and is a program that 

includes CMS, state Medicaid agencies, 

and participating drug manufacturers 

that helps to partially offset the federal 

and state costs of most outpatient 

prescription drugs dispensed to 

Medicaid beneficiaries. The MDRP 

provides specific requirements for 

rebate agreements, drug pricing 

submission and confidentiality 

requirements, the formulas for 

calculating rebate payments, drug 

utilization reviews (DUR), and 

requirements for states for CODs. 

The Covered Outpatient Drugs final 

rule with comment period (COD final 

rule) was published in the February 1, 

2016 Federal Register (81 FR 5170) and 

became effective on April 1, 2016. The 

COD final rule implemented provisions 

of section 1927 of the Act that were 

added by the Patient Protection and 

Affordable Care Act of 2010, as 

amended by the Health Care and 

Education Reconciliation Act of 2010 

(collectively referred to as the 

Affordable Care Act) pertaining to 

Medicaid reimbursement for CODs. It 

also revised other requirements related 

to CODs, including key aspects of 

Medicaid coverage and payment and the 

MDRP under section 1927 of the Act. 

The regulations implemented through 

the COD final rule, and those proposed 

in the ‘‘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’’ proposed rule that 

appeared in the June 19, 2020 Federal 

Register (85 FR 37256) (hereinafter 

referred to as the June 2020 proposed 

rule) are consistent with the Secretary’s 

authority set forth in section 1102 of the 

Act to publish regulations that are 

necessary to the efficient administration 

of the Medicaid program. 

A. Changes to Coordination of Benefits/ 

Third Party Liability Regulation Due to 

Bipartisan Budget Act (BBA) 2018 

Medicaid is the payer of last resort, 

which means that other available 

resources—known as third party 

liability, or TPL—must be used before 

Medicaid pays for services received by 

a Medicaid-eligible individual. Title 

XIX of the Act requires state Medicaid 

programs to identify and seek payment 

from liable third parties, before billing 

Medicaid. Section 53102 of the 

Bipartisan Budget Act of 2018 (BBA 

2018) (Pub. L. 115–123, enacted 

February 9, 2018) amended the TPL 

provision at section 1902(a)(25) of the 

Act. Specifically, section 1902(a)(25)(A) 

of the Act requires that states take all 

reasonable measures to ascertain legal 

liability of third parties to pay for care 

and services available under the plan. 

That provision further specifies that a 

third party is any individual, entity, or 


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1https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/ 

downloads/rx-releases/mfr-releases/mfr-rel-111.pdf. 2https://www.medicaid.gov/prescription-drugs/ 

downloads/mfr-rel-112.pdf. 

program that is or may be liable to pay 

all or part of the expenditures for 

medical assistance furnished under a 

state plan. Section 1902(a)(25)(A)(i) of 

the Act specifies that the state plan must 

provide for the collection of sufficient 

information to enable the state to pursue 

claims against third parties. Examples of 

liable third parties include: Private 

insurance companies through 

employment-related or privately 

purchased health insurance; casualty 

coverage resulting from an accidental 

injury; payment received directly from 

an individual who has voluntarily 

accepted or been assigned legal 

responsibility for the health care of one 

or more Medicaid recipients; fraternal 

groups, unions, or state workers’ 

compensation commissions; and 

medical support provided by a parent 

under a court or administrative order. 

Effective February 9, 2018, section 

53102(a)(1) of the BBA 2018 amended 

section 1902(a)(25)(E) of the Act to 

require a state to use standard COBs cost 

avoidance when processing claims for 

prenatal services which now included 

labor and delivery and postpartum care 

claims. Additionally, effective October 

1, 2019, section 53102(a)(1) of the BBA 

2018 amended section 1902(a)(25)(E) of 

the Act, to require a state to make 

payments without regard to third party 

liability (TPL) for pediatric preventive 

services unless the state has made a 

determination related to costeffectiveness and access to care that 

warrants cost avoidance for 90 days. 

Section 53102(b)(2) of the BBA 2018 

delays the implementation date from 

October 1, 2017 to October 1, 2019 of 

the provision from the Bipartisan 

Budget Act of 2013 (Pub. L. 113–67, 

enacted December 26, 2013) (BBA 

2013), which allowed for payment up to 

90 days after a claim is submitted that 

is associated with medical support 

enforcement instead of 30 days under 

previous law. Medical support is a form 

of child support that is often provided 

through an absent parent’s employers 

health insurance plan. 

Effective April 18, 2019, section 7 of 

the Medicaid Services Investment and 

Accountability Act of 2019 (Pub. L. 

116–16, enacted April 18, 2019) 

(MSIAA) amended section 202(a)(2) of 

the BBA 2013 to allow 100 days instead 

of 90 days to pay claims related to 

medical support enforcement under 

section 1902(a)(25)(F)(i) of the Act. 

B. Changes to the Calculation of 

Average Manufacturer Price (AMP) 

Regarding Authorized Generic Drugs 

Due to the Continuing Appropriations 

Act, 2020, and Health Extenders Act of 

2019 

On September 27, 2019, the President 

signed into law the Continuing 

Appropriations Act, 2020, and Health 

Extenders Act of 2019 (Health Extenders 

Act) (Pub. L. 116–59), which made 

changes to sections 1927(k)(1) and 

1927(k)(11) of the Act, revising how 

manufacturers calculate the AMP for a 

COD, for which the manufacturer 

permits an authorized generic to be sold 

and redefines the definition of 

wholesaler. Manufacturers that approve, 

allow, or otherwise permit any drug to 

be sold under the manufacturer’s own 

new drug application (NDA) approved 

under section 505(c) of the Federal 

Food, Drug, and Cosmetic Act (Pub. L. 

75–717, enacted June 25, 1938) 

(FFDCA), shall no longer include sales 

of these authorized generics in the 

calculation of AMP of the brand name 

drug, regardless of the relationship 

between the brand name manufacturer 

and the manufacturer of the authorized 

generic. That is, a separate AMP would 

be calculated for the sales of the brand 

name drug and the authorized generic. 

Specifically, section 1603 of the 

Health Extenders Act of 2019 (Pub. L. 

116–59, enacted September 27, 2019), 

which is titled ‘‘Excluding Authorized 

Generic Drugs from Calculation of 

Average Manufacturer Price for 

Purposes of the Medicaid Drug Rebate 

Program; Excluding Manufacturers from 

Definition Of Wholesaler,’’ amended the 

statute as follows: 

• Section 1927(k)(1)(C) of the Act to 

replace the term ‘‘Inclusion’’ with 

‘‘Exclusion’’ in the title and further 

amended paragraph (C) to state that, in 

the case of a manufacturer that 

approves, allows, or otherwise permits 

any drug of the manufacturer to be sold 

under the manufacturer’s NDA 

approved under section 505(c) of the 

FFDCA, such term shall be exclusive of 

the average price paid for such drug by 

wholesalers for drugs distributed to 

retail community pharmacies. 

• The definition of wholesaler at 

section 1927(k)(11) of the Act to remove 

references to manufacturers from the 

definition of wholesaler. 

Typically, an authorized generic is a 

product that a manufacturer (primary 

manufacturer) allows another 

manufacturer (secondary manufacturer) 

to sell under the primary manufacturer’s 

Food and Drug Administration (FDA) 

approved NDA but under a different 

National Drug Code (NDC) number. The 

authorized generic is typically the 

primary manufacturer’s brand product 

offered at a lower price point. Primary 

manufacturers may sell the authorized 

generic product to the secondary 

manufacturer they are allowing to sell 

an authorized generic of their brand 

product, and such sales are commonly 

referred to as transfer sales, or they may 

allow a subsidiary manufacturer to sell 

the authorized generic. 

Under the amendments made to 

section 1927 of the Act, a primary 

manufacturer that sells the authorized 

generic version of the brand drug to the 

secondary manufacturer can no longer 

include the price of the transfer sale of 

the authorized generic to the secondary 

manufacturer in its calculation of AMP 

for the brand product. The exclusion of 

these transfer sales from the primary 

manufacturer’s brand drug AMP will 

likely result in higher AMPs for the 

brand drugs and a potential increase to 

a manufacturer’s Medicaid drug rebates 

to states. 

The amendments to section 1927 of 

the Act authorized under section 1603 

of the Health Extenders Act are effective 

October 1, 2019. Therefore, 

manufacturers must reflect the changes 

to the calculation of their AMPs for 

rebate periods beginning October 1, 

2019 (reported to CMS no later than 30 

days after the end of the rebate period). 

To assist manufacturers, CMS provided 

guidance in Manufacturer Release 

#111 1 and Manufacturer Release #112.2

Furthermore, in accordance with 42 

CFR 447.510(b), manufacturers have 12 

quarters from the quarter in which the 

data were due to revise AMP, if 

necessary. The amendments to section 

1927 of the Act have not changed the 

inclusion of authorized generic drugs in 

best price; therefore, we did not propose 

any amendments to the regulatory 

requirements at § 447.506(c) and (d). 

C. Changes as Result of the Bipartisan 

Budget Act of 2015 

Under the Medicaid program, states 

may provide coverage of prescribed 

drugs as an optional service under 

section 1905(a)(12) of the Act. Section 

1903(a) of the Act provides for FFP in 

state expenditures for these drugs. 

Section 1927 of the Act governs the 

MDRP and payment for CODs, which 

are defined in section 1927(k)(2) of the 

Act. In general, for payment to be made 

available under section 1903(a) of the 

Act for CODs, manufacturers must enter 

into an NDRA as set forth in section 


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3https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/ 

downloads/rx-releases/state-releases/state-rel176.pdf. 

4https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/ 

downloads/rx-releases/mfr-releases/mfr-rel-099.pdf. 

5https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/ 

downloads/rx-releases/mfr-releases/mfr-rel-102.pdf. 

1927(a) and (b) of the Act. Section 1927 

of the Act provides specific 

requirements for rebate agreements, 

drug pricing submission and 

confidentiality requirements, the 

formulas for calculating rebate 

payments, and requirements for states 

for CODs. Section 602 of the Bipartisan 

Budget Act of 2015 (Pub. L. 114–74, 

enacted November 2, 2015) (BBA 2015) 

amended section 1927(c)(3) of the Act to 

require that manufacturers pay 

additional rebates on their noninnovator multiple source (N) drugs if 

the AMPs of an N drug increase at a rate 

that exceeds the rate of inflation. This 

provision of BBA 2015 was effective 

beginning with the January 1, 2017 

quarter, or in other words, beginning 

with the unit rebate amounts (URAs) 

that are calculated for the January 1, 

2017 quarter. This additional inflation 

adjusted rebate requirement for N drugs 

was discussed in Manufacturer Release 

Nos. 97 (Manufacturer Release 97) and 

101 (Manufacturer Release 101). 

D. Current MDRP and Value-Based 

Purchasing (VBP) Arrangements 

In the preamble of the COD final rule, 

in response to a comment (81 FR 5253), 

we recognized the importance of VBPs, 

especially when such arrangements 

benefit patient health care outcomes. 

We acknowledged that, given the 

uniqueness of each VBP arrangement, 

we had to consider how to provide more 

specific guidance on the matter, 

including how such arrangements affect 

a manufacturer’s calculation of a drug’s 

best price and Medicaid drug rebate 

obligations. Thereafter, we released a 

state and manufacturer notice on July 

14, 2016 (available at State Release 176 3

and Manufacturer Release 99 4) to 

inform states and manufacturers on how 

to seek guidance from us on their 

specific VBP, as well as to encourage 

states to consider entering into VBP as 

a means to address high cost drug 

treatments. 

Since the release, manufacturers and 

states have shown an increased interest 

in VBP as a possible option for better 

managing and predicting drug spending, 

which helps to assure that 

manufacturers have some vested interest 

in assuring positive patient outcomes 

from the use of their drugs. To this end, 

we have approved nine state plan 

amendments (SPAs) submitted by states 

that allow states to negotiate 

supplemental rebates under CMSauthorized rebate agreements with drug 

manufacturers based on evidence-based 

measures or outcomes-based measures 

for a patient or beneficiary based on use 

of the drug. 

In addition, manufacturers have 

approached us with their issues and 

questions regarding the impact of 

various types of VBP proposals on their 

MDRP price reporting obligations (that 

is, AMP and best price), as well as the 

regulatory challenges they encounter 

when structuring and implementing 

VBP. Finally, manufacturers have noted 

MDRP reporting challenges with VBP 

programs, whose evidence or outcomesbased measures extend beyond 3 years, 

particularly given that manufacturers 

have limited ability to make changes to 

reporting metrics outside the 12-quarter 

MDRP reporting period. In the June 

2020 proposed rule, we addressed some 

of the manufacturer concerns with 

regards to these MDRP requirements. 

E. Definition of Line Extension, New 

Formulation, and Oral Solid Dosage 

Form for Alternative URA 

Section 2501(d) of the Patient 

Protection and Affordable Care Act 

(Pub. L. 111–148, enacted March 23, 

2010), as amended by section 1206 of 

the Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152, enacted March 30, 2010) 

(collectively referred to as the 

Affordable Care Act) added section 

1927(c)(2)(C) of the Act effective for 

drugs paid for by a state on or after 

January 1, 2010. This provision 

establishes an alternative formula for 

calculating the URA for a line extension 

of a single source drug or innovator 

multiple source drug that is an oral 

solid dosage form. We refer to the URA 

calculated under the alternative formula 

as the ‘‘alternative URA.’’ Additionally, 

the Affordable Care Act defined ‘‘line 

extension’’ to mean, for a drug, a new 

formulation of the drug, such as an 

extended release formulation. Section 

1927(c)(2)(C) of the Act was further 

amended by section 705 of the 

Comprehensive Addiction and Recovery 

Act of 2016 (Pub. L. 114–198, enacted 

July 22, 2016) (CARA) to exclude from 

that definition an abuse-deterrent 

formulation of the drug (as determined 

by the Secretary), regardless of whether 

such abuse-deterrent formulation is an 

extended release formulation. The 

determination of whether a drug is 

excluded because it is an abuse 

deterrent formulation is explained in at 

Manufacturer Release 102.5 The CARA 

amendment applies to drugs paid for by 

a state in calendar quarters beginning on 

or after the July 22, 2016 date of 

enactment of CARA (that is, beginning 

with 4Q 2016). Finally, section 

1927(c)(2)(C) of the Act was further 

amended by section 53104 of the BBA 

of 2018, which provided a technical 

correction such that the rebate for a line 

extension of a single source drug or an 

innovator multiple source drug that is 

an oral solid dosage form shall be the 

greater of either (1) the standard rebate 

(calculated as a base rebate amount plus 

an additional inflation-based rebate) or 

(2) the base rebate amount increased by 

the alternative formula described in 

section 1927(c)(2)(C)(iii)(I) through (III) 

of the Act. We refer to the additional 

inflation-based rebate as the ‘‘additional 

rebate.’’ Additionally, as we have used 

the term ‘‘initial brand name listed 

drug’’ in the ‘‘Medicaid Program; 

Covered Outpatient Drugs’’ proposed 

rule published in the February 2, 2012 

Federal Register (77 FR 5318, 5323 

through 5324) (hereinafter referred to as 

the February 2, 2012 proposed rule), the 

Covered Outpatient Drugs final rule 

with comment published on February 1, 

2016 (81 FR 5197), and 

§ 447.509(a)(4)(iii) to refer to the initial 

single source drug or innovator multiple 

source drug, we continued to do so in 

the June 2020 proposed rule. The BBA 

of 2018 amendment applies to rebate 

periods beginning on or after October 1, 

2018. 

We proposed a definition of ‘‘line 

extension’’ in the February 2, 2012 

proposed rule (77 FR 5323 through 

5324) and received numerous 

comments. In the COD final rule, we did 

not finalize the proposed definition and 

requested additional comments with a 

60-day comment period that closed on 

April 1, 2016. The additional comments 

received, although instructive of the 

public’s thoughts at the time, were not 

informed by the then-current statutory 

framework. Therefore, we did not 

finalize a definition of ‘‘line extension’’ 

in the April 1, 2019 final rule (84 FR 

12132). We reiterated in the April 1, 

2019 final rule that manufacturers are to 

rely on the statutory definition of ‘‘line 

extension’’ at section 1927(c)(2)(C) of 

the Act, and where appropriate are 

permitted to use reasonable 

assumptions in their determination of 

whether their drug qualifies as a line 

extension. We also stated that if we later 

decide to develop a regulatory 

definition of ‘‘line extension,’’ we 


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would do so through our established 

Administrative Procedures Act (APA) 

compliant rulemaking process and issue 

a proposed rule. In the June 2020 

proposed rule (85 FR 37294 through 

37296), we proposed definitions of ‘‘line 

extension’’, ‘‘new formulation’’, and 

‘‘oral solid dosage form’’. 

The line extension provision has been 

in effect since January 1, 2010, and the 

Drug Data Reporting (DDR) for Medicaid 

system was modified in 2016 to 

implement the data reporting 

requirements for line extensions. 

However, we have found that some 

manufacturers are unclear about their 

line extension reporting obligations, for 

example, whether a particular drug 

satisfies the statutory definition of line 

extension and the identification of the 

initial brand name listed drug. 

Therefore, in addition to proposing 

definitions of ‘‘line extension’’, ‘‘new 

formulation’’, and ‘‘oral solid dosage 

form’’, we provided the clarification 

below regarding manufacturers’ 

reporting obligations in the June 2020 

proposed rule (85 FR 37289). 

Details regarding how to calculate the 

additional rebate (calculated as a 

percentage of AMP) and the alternative 

URA can be found in the ‘‘Medicaid 

Program; Covered Outpatient Drug; Line 

Extension Definition; and Change to the 

Rebate Calculation for Line Extension 

Drugs’’ final rule and interim final rule 

with comment period that was 

published in the April 1, 2019 Federal 

Register (84 FR 12133) (hereinafter 

referred to as the April 1, 2019 final 

rule). We note that under 

§ 447.509(a)(4)(iii), manufacturers are 

required to calculate the alternative 

URA if the manufacturer of the line 

extension also manufactures the initial 

brand name listed drug or has a 

corporate relationship with the 

manufacturer of the initial brand name 

listed drug. As noted in the June 2020 

proposed rule (85 FR 37295), although 

a drug that meets the definition of a line 

extension should be identified as such 

in DDR, a manufacturer is not required 

to calculate the alternative URA unless 

the manufacturer of the line extension 

also manufactures, or has a corporate 

relationship with the manufacturer of, 

the initial brand name listed drug. 

To apply the alternative formula 

described in section 1927(c)(2)(C)(iii)(I) 

through (III) of the Act for each line 

extension and rebate period, the 

manufacturer must determine which 

NDC represents the initial brand name 

listed drug that will be used to calculate 

the alternative URA. First, the 

manufacturer must identify all potential 

initial brand name listed drugs by their 

respective NDCs by considering all 

strengths and dosage forms of the initial 

brand name listed drug in accordance 

with section 1927(c)(2)(C)(iii)(II) of the 

Act. Additionally, only those potential 

initial brand name listed drugs that are 

manufactured by the manufacturer of 

the line extension or by a manufacturer 

with which the line extension 

manufacturer has a corporate 

relationship should be considered. 

Then, the manufacturer must evaluate 

the additional rebate (calculated as a 

percentage of AMP) for each potential 

initial brand name listed drug. The 

potential initial brand name listed drug 

that has the highest additional rebate 

(calculated as a percentage of AMP) is 

the initial brand name listed drug that 

must be identified in DDR and used to 

calculate the alternative URA for the 

rebate period. 

Section 1927(c)(2)(C)(i) of the Act 

requires the manufacturer to calculate 

the alternative formula for each quarter 

to determine the initial drug for each 

quarter that has the highest additional 

rebate (calculated as a percentage of 

AMP). Therefore, the manufacturer must 

re-evaluate the additional rebate 

(calculated as a percentage of AMP) for 

each potential initial brand name listed 

drug each quarter. Because the 

additional rebate (calculated as a 

percentage of AMP) for any potential 

initial brand name listed drug may 

change from one quarter to the next, the 

initial brand name listed drug used for 

the alternative URA calculation may 

also change from one quarter to the 

next. Additionally, the NDC for the 

initial brand name listed drug must be 

active in MDRP for the quarter, that is, 

an NDC that is produced or distributed 

by a manufacturer with an active NDRA 

and the NDC does not have a 

termination date that occurred in a 

rebate period earlier than the rebate 

period for which the calculation is being 

performed. Because drugs may come on 

and off the market, an initial brand 

name listed drug that was used to 

calculate the alternative URA for one 

quarter may not be active in MDRP for 

the next quarter. However, a different 

initial brand name listed drug may be 

active in MDRP and available to use to 

calculate the alternative URA for the 

next quarter. 

F. Impact of Certain Manufacturer 

Sponsored Patient Assistance Programs 

(‘‘PBM Accumulator Programs’’) on Best 

Price and AMP 

Manufacturer-sponsored patient 

assistance programs can be helpful to 

patients in obtaining necessary 

medications. However, PBMs contend 

that manufacturer-sponsored assistance 

programs steer consumers towards more 

expensive medications when there may 

be more cost saving options available to 

health plans. Therefore, as a cost saving 

measure, PBMs have encouraged health 

plans in some cases to not allow the 

manufacturer-sponsored assistance 

provided under such programs to be 

applied towards a patient’s health plan 

deductible for a brand name drug not on 

a plan’s formulary. In the June 2020 

proposed rule, we provided proposed 

instruction to manufacturers on how to 

consider the implementation of such 

programs when determining best price 

and AMP for purposes of the MDRP. 

G. State Drug Utilization Data (SDUD) 

Reported to MDRP 

Section 1927(b)(2)(A) of the Act 

requires each state agency to report to 

each manufacturer not later than 60 

days after the end of each rebate period 

and in a form consistent with a standard 

reporting format established by the 

Secretary, information on the total 

number of units of each dosage form 

and strength and package size of each 

COD dispensed after December 31, 

1990, for which payment was made 

under the plan during the period, 

including such information reported by 

each Medicaid managed care 

organization (MCO), and shall promptly 

transmit a copy of such report to the 

Secretary. In accordance with this 

requirement, states are required to send 

state drug utilization data (SDUD) using 

OMB-approved Rebate Invoice Form, 

the CMS–R–144 (the data fields and 

descriptions are included as Exhibit X 

in the June 2020 proposed rule) to 

manufacturers and transmit a copy of 

this report to CMS. 

While many states subject their SDUD 

on the CMS–R–144 to edits to uncover 

outliers/inaccuracies in the invoices to 

manufacturers before sending copies to 

CMS, some states send unedited copies 

of the SDUD to CMS, resulting in 

discrepancies that do not conform with 

the statutory requirement at section 

1927(b)(2)(A) of the Act. The statute 

requires such reporting to be in a form 

consistent with a standard reporting 

format established by the Secretary, and 

we believe that such a copy means that 

the data submitted on the invoice 

(CMS–R–144) to the manufacturer must 

be accurate and identical to the report 

(copy) states send to CMS. Further, we 

expect that when states send SDUD 

updates or changes to manufacturers, 

they transmit those changes to us 

concurrently in a copy to CMS. 

However, in some cases, states fail to 

submit these updates causing the data to 

be mismatched. This results in states 

not complying with section 

1927(b)(2)(A) of the Act and CMS not 


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87004 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

6https://www.cdc.gov/drugoverdose/data/ 

statedeaths.html. 7Ray WA, Chung CP, Murray KT, Hall K, Stein 

CM. Prescription of Long-Acting Opioids and 

Mortality in Patients with Chronic Noncancer Pain. 

JAMA. 2016 Jun 14; 315(22):2415–23. 8Baumblatt JA, Wiedeman C, Dunn JR, Schaffner 

W, et al. High-risk use by patients prescribed 

opioids for pain and its role in overdose deaths. 

JAMA Intern Med. 2014 May; 174(5):796–801. 

9Bonnie, Richard J., et al. Pain Management and 

the Opioid Epidemic: Balancing Societal and 

Individual Benefits and Risks of Prescription 

Opioid Use. The National Academies Press, 2017. 

10 Davis, Cory. ‘‘Naloxone for Community Opioid 

Overdose Reversal.’’ Naloxone for Community 

Opioid Overdose Reversal|Public Health Law 

Research, Public Health Law Research (PHLR), 22 

June 2015, http://phlr.org/product/naloxonecommunity-opioid-overdose-reversal. 

11 ‘‘Opioid Addiction 2016 Facts & Figures— 

ASAM Home Page.’’ American Society of Addition 

Medicine, www.asam.org/docs/default-source/ 

advocacy/opioid-addiction-disease-factsfigures.pdf. 

12https://www.samhsa.gov/data/sites/default/ 

files/cbhsq-reports/NSDUHFFR2017/ 

NSDUHFFR2017.pdf. 

13https://www.fda.gov/consumers/consumerupdates/where-and-how-dispose-unusedmedicines. 

14https://www.cdc.gov/nchs/nhis/nhis_nhsr.htm. 

15 Ibid. 

having an accurate account of rebates 

billed in the MDRP. 

H. Changes Related to the Substance 

Use-Disorder Prevention That Promotes 

Opioid Recovery and Treatment 

(SUPPORT) for Patients and 

Communities Act 

The epidemic of opioid overdose, 

misuse, and opioid use disorders is a 

critical public health issue that affects 

the lives of millions of Americans. 

Research shows the opioid overdose 

epidemic has a disproportionate impact 

on Medicaid beneficiaries and the 

consequences have been tragic. In 2017, 

47,600 people in America died of an 

opioid overdose per the Centers for 

Disease Control and Prevention (CDC).6

Inappropriate opioid prescribing can 

result in costly medical complications 

such as abuse, misuse, overdoses, falls 

and fractures, drug to drug interactions 

and neonatal conditions. The use of 

multiple opioids is associated with a 

higher risk of mortality, with mortality 

risk increasing in direct relation to the 

number of opioids prescribed 

concurrently.7 8 Beneficiaries who 

receive multiple opioids may lack 

coordinated care and are at higher risk 

for opioid overdose.9 These 

complications are costly, preventable, 

and result in avoidable healthcare 

expenditures.10 Moreover, according to 

the National Institute on Drug Abuse 

(NIDA), research suggests that misuse of 

prescription pain relievers may actually 

open the door to heroin use, as four in 

five new heroin users started out 

misusing prescription pain reliever.11

More than half of the individuals 

misusing prescription opioids obtained 

the medication they used from a friend 

or relative; 12 this emphasizes the need 

for safe disposal 13 of unused 

medications, including opioids. 

Since 1993, section 1927(g) of the Act 

has required each state to develop a 

DUR program targeted, in part, at 

reducing abuse and misuse of outpatient 

prescription drugs covered under the 

state’s Medicaid Program. The DUR 

program operates to help ensure that 

prescriptions are appropriate, medically 

necessary, and are not likely to result in 

adverse medical events. Each state DUR 

program consists of prospective drug 

use review, retrospective drug use 

review, data assessment of drug use 

against predetermined standards, and 

ongoing educational outreach activities. 

Consistent with section 1927(g)(3)(D) 

of the Act, we require each state 

Medicaid program to submit to us an 

annual report on the operation of its 

Medicaid DUR program for the fee-forservice (FFS) delivery system, including 

information on prescribing patterns, 

cost savings generated by the state’s 

DUR program, and the state’s DUR 

program’s overall operations, including 

any new or innovative practices. 

Additionally, § 438.3(s)(4) and (5) 

require state contracts with any MCO, 

prepaid inpatient health plan (PIHP) or 

prepaid ambulatory health plan (PAHP) 

that covers CODs to require the MCO, 

PIHP, or PAHP to operate a DUR 

program that complies with section 

1927(g) of the Act and 42 CFR part 456, 

subpart K, and to submit detailed 

information about its DUR program 

activities annually. For the purposes of 

this final rule, managed care program 

(MCP) references MCOs, managed care 

entities (MCEs), PAHPs and PIHPs. 

The Substance Use-Disorder 

Prevention that Promotes Opioid 

Recovery and Treatment for Patients 

and Communities Act (Pub. L. 115–271, 

enacted October 24, 2018) (the 

SUPPORT Act) includes measures to 

combat the opioid crisis in part by 

reducing opioid related abuse and 

misuse by advancing treatment and 

recovery initiatives, improving 

prevention, protecting communities, 

and bolstering efforts to fight deadly 

illicit synthetic drugs. There are several 

Medicaid-related DUR provisions for 

FFS and MCP pharmacy programs 

contained within section 1004 of the 

SUPPORT Act. These provisions 

establish drug review and utilization 

standards in section 1902(a)(85) and 

(oo) of the Act to supplement existing 

requirements under section 1927(g) of 

the Act, in an effort to reduce opioidrelated fraud, misuse and abuse. State 

implementation of these strategies was 

required by October 1, 2019, and states 

must include information about their 

implementation in their annual reports 

under section 1927(g)(3)(D) of the Act. 

In turn, the Secretary is required to 

report to Congress on the information 

submitted by the states, starting with 

information from states’ FY 2020 

reports. 

Consistent with section 1927(g) of the 

Act, the SUPPORT Act has the goal of 

improving the quality of care received 

by Medicaid recipients by reducing 

their exposure to hazards resulting from 

the inappropriate prescribing, gross 

overuse, or inappropriate or medically 

unnecessary care. In this context, 

strategies to assure the appropriate use 

of opioids are now being implemented 

in clinical settings, health care systems 

and public health agencies. Efforts to 

prevent harms associated with overuse 

and misuse of opioids must be 

integrated to ensure patients are 

receiving appropriate pain care. Pain is 

a common condition; estimates of 

chronic pain and high impact chronic 

pain in adults 65–84 years of age were 

28 percent and 11 percent respectively, 

based on 2016 National Health 

Interview Survey Data.14 Estimates of 

acute pain in people under 65 years 

range from 7 to 52 percent, with 

headache, joint, and neuropathic pain 

commonly cited.15 We recognize efforts 

involving multiple stakeholders 

including the pain management 

community are needed to address the 

opioid crisis, to assure the health and 

well-being of Medicaid beneficiaries, 

and decrease any related health care 

expenditures. We are committed to 

ensuring there are basic minimum 

standards implemented through 

Medicaid DUR programs nationwide to 

help ensure that prescriptions are 

appropriate, medically necessary and 

align with current standards of care, 

under our authority to implement 

section 1927(g) of the Act and section 

1004 of the SUPPORT Act. 

I. Single Source Drug, Multiple Source 

Drug, Innovator Multiple Source Drug 

Section 6(c) of the MSIAA modified 

the definitions in section 1927(k) of the 

Act for single source drug, multiple 

source drug, and innovator multiple 

source drug. In the June 2020 proposed 

rule, we proposed to revise the 

definitions of these terms at § 447.502 to 

reflect these statutory changes. 


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II. Summary of the Provisions of the 

Proposed Regulations, Analysis of and 

Response to Public Comments, and 

Provisions of the Final Rule 

The following summarizes comments 

received in response to the June 2020 

proposed rule (https://

www.regulations.gov/docket?D=CMS2020-0072) in general, or about issues 

not addressed in the proposed 

regulations. 

Comment: A few commenters 

expressed concern that the proposed 

rule will jeopardize future drug 

development or enable drug 

manufacturers to rush drugs to market. 

Response: We understand the concern 

about the possible impact of a new 

regulation on drug development; 

however, we do not believe the rule will 

jeopardize future drug development or 

enable drug manufacturers to rush drugs 

to the market. The rule, as it relates to 

VBP, is meant to help improve patient 

access to new medications, particularly 

new high cost therapies such as gene or 

cell therapies, by facilitating the use of 

VBP arrangements when purchasing 

such medications. We believe this rule 

helps create incentives for 

manufacturers to bring new drugs to 

market, and depending on the nature of 

the VBP arrangements could also create 

incentives for manufacturers to 

complete their clinical trials post 

marketing. 

We note that this rule has no impact 

on the processes manufacturers must 

follow to bring new drugs to the market. 

Processes for review, approval, and 

marketing of drug products are the 

responsibility of FDA. 

Comment: A few commenters 

expressed concern that the proposed 

changes to regulations will place 

additional burden on healthcare 

providers and the Medicaid program 

which are already overburdened by the 

novel coronavirus pandemic, both 

financially and administratively. A few 

commenters specifically expressed 

concern that the proposed changes will 

exacerbate access barriers and financial 

hardships for patients who are already 

experiencing increased barriers to care 

and financial hardship due to the 

coronavirus disease 2019 (COVID–19) 

pandemic and did not believe that the 

proposed changes were appropriate at 

the time of a public health emergency 

(PHE). The commenters suggested that 

the result of this rule on patients during 

this time will lead to increased 

healthcare costs that force patients to 

skip needed healthcare and lead to 

increased health issues and debilitating 

harms. One commenter also noted that 

the proposed rule was inconsistent with 

the President’s Executive Order 13924, 

‘‘Regulatory Relief to Support Economic 

Recovery,’’ that requires the heads of 

federal agencies to remove regulatory 

barriers to support the nation’s 

economic recovery following the 

COVID–19 pandemic. 

Response: We appreciate the concerns 

expressed by the commenters. As noted 

in the ‘‘EFFECTIVE DATE’’ section of 

this rule, these provisions will be 

effective March 1, 2021. However, we 

recognize that some final policies 

established in this final rule will require 

additional time to make necessary 

operational and administrative changes 

in order to ensure compliance, 

specifically those final policies related 

to the Definition of Line Extension, New 

Formulation, Oral Solid Dosage Form at 

§ 447.502; Changes to Medicaid drug 

rebates (MDR) at § 447.509(a)(4); 

Changes to the Requirements for States 

at § 447.511 (SDUD and State 

Certification); Changes to State plan 

requirements, findings, and assurances 

at § 447.518(d) (CMS-Authorized 

Supplemental Rebate Reporting); and 

therefore these sections will not be 

effective until January 1, 2022. 

Similarly, changes to the Determination 

of AMP at § 447.504(c) and (e) and 

determination of Best price at § 447.505 

(c) will not be effective until January 1, 

2023. These final policies are discussed 

further in the applicable sections of this 

final rule. 

Comment: Several commenters 

believed that the 30-day comment was 

not sufficient for the public and 

industry to analyze the impact of the 

policies being proposed. One 

commenter in particular did not agree 

that it was a not an economically 

significant rule, and that industry have 

only 30 days to comment. 

Response: CMS provided a 30-day 

comment period, which is consistent 

with the Administrative Procedure Act. 

CMS believes that interested 

stakeholders had adequate opportunity 

to provide comment on the policies 

established in this final rule. 

Comment: A few commenters 

suggested that proceeding to a final rule 

at this stage will raise APA issues 

because any final rule must be a ‘‘logical 

outgrowth’’ of its proposal. 

Response: We disagree with the 

commenter that this rule raises logical 

outgrowth concerns. In the proposed 

rule, we described the substance and 

alternatives to the proposed rule and 

described the subjects and issues 

covered by the rule. Where this final 

rule is different from that discussed in 

the proposed rule, it does not deviate 

sharply from the proposed rule. We 

provided adequate notice in the 

proposed rule that those changes were 

possible. Accordingly, we provided 

interested parties sufficient notice that 

they should have anticipated that those 

changes were possible. 

After consideration of public 

comments, we are issuing this final rule, 

as discussed in greater detail in the 

sections that follow. 

Comment: A few commenters 

suggested that CMS specify a later 

effective date for the final rule, such as 

at least 4 quarters from final rule 

publication to allow CMS to issue 

additional guidance, manufacturers to 

evaluate each drug in their portfolio, 

and manufacturers and state Medicaid 

agencies to make necessary system 

changes to price and data reporting 

systems. 

Response: We are issuing this rule 

with an effective date of March 1, 2021. 

However, certain sections of this final 

rule as noted above, will not be effective 

until January 1, 2022 or January 1, 2023. 

Comment: Several commenters 

expressed concern that the proposed 

rule will increase outpatient 

prescription drug prices and out-ofpocket costs for patients, and therefore, 

decrease patient access to needed care 

and medications. Furthermore, 

commenters noted that the regulation 

may intrude into the provider and 

patient relationship. One commenter 

urged CMS to withdraw the proposed 

rule and reconsider the proposed 

changes or include express protections 

to ensure that Medicaid beneficiaries 

continue to have access to medically 

necessary outpatient prescription drugs. 

Response: We appreciate the 

commenters concerns regarding patient 

protections, but we disagree that this 

rule negatively impacts access to needed 

care and medications. In particular, and 

as discussed in the preamble to the June 

2020 proposed rule (85 FR 37288), CMS 

supports manufacturer and state’s use of 

VBP arrangements because we believe it 

will assist states with providing 

Medicaid patients access to needed 

therapies while providing a payment 

arrangement that allows the state 

flexibility, including an option to only 

pay for a drug when an evidence-based 

or outcomes-measures are achieved. For 

such arrangements to work for 

Medicaid, we need to balance changes 

to MDRP regulations to address 

manufacturers’ concerns with offering 

such innovative payment arrangements 

to Medicaid programs, while ensuring 

the required economies, efficiencies, 

and quality of care continue to be 

provided under the Medicaid program. 

If we do not address a number of 

potential regulatory hurdles, states may 

not be able to provide such methods and 


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87006 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

procedures relating to the utilization of, 

and payment for care and services as 

may be necessary to safeguard against 

unnecessary utilization of such care and 

services and assure that consistent with 

section 1902(a)(30)(A) of the Act, 

Medicaid payments are consistent with 

efficiency, economy, and quality of care 

(85 FR 37291). 

A. Third Party Liability: Payment of 

Claims (42 CFR 433.139) 

In 1980, under the authority in 

section 1902(a)(25)(A) of the Act, we 

issued regulations at part 433, subpart D 

establishing requirements for state 

Medicaid agencies to support the 

coordination of benefits (COB) effort by 

identifying TPL. Effective February 9, 

2018, section 53102(a)(1) of BBA 2018 

amended section 1902(a)(25)(E) of the 

Act to require states to cost avoid claims 

(for example, when the state Medicaid 

agency has determined there is a legally 

liable third party responsible for paying 

the claim, it will reject (‘‘cost avoid’’) 

the claim) for prenatal care for pregnant 

women including labor and delivery 

and postpartum care, and to allow the 

state Medicaid agency 90 days instead 

of 30 days to pay claims related to 

medical support enforcement services, 

as well as requiring states to collect 

information on TPL before making 

payments. Effective April 18, 2019, 

section 7 of the MSIAA amended 

section 1902(a)(25)(E) of the Act to 

allow 100 days instead of 90 days to pay 

claims related to medical support 

enforcement services, as well as 

requiring states to collect information 

on TPL before making payments. 

Section 433.139(b)(2), (b)(3)(i), and 

(b)(3)(ii)(B) detail the exception to 

standard COB cost avoidance by 

allowing pay and chase for certain types 

of care, as well as the timeframe allowed 

prior to Medicaid paying claims for 

certain types of care. Specifically, we 

proposed to delete § 433.139(b)(2). We 

also proposed to revise § 433.139(b)(3)(i) 

by removing ‘‘prenatal care for pregnant 

women, or’’ from pay and chase 

services, and § 433.139(b)(3)(ii)(B) by 

removing ‘‘30 days’’ and adding ‘‘100 

days.’’ 

The following is a summary of the 

public comments we received on our 

proposal to revise § 433.139. 

Comment: One commenter requested 

that CMS provide guidance to Medicaid 

MCOs on how they can more reliably 

and efficiently identify other payers 

through the state Medicaid agency. The 

commenter stated this will facilitate 

implementation of CMS’ proposals to 

require states to reject claims for 

pregnancy-related services in cases 

where a third party is legally 

responsible for payment and to allow 

states a period of 100 days to pay claims 

related to medical support enforcement 

services. 

Response: COB/TPL requirements 

apply in Medicaid MCOs, as well as 

Medicaid FFS programs. MCOs are 

required to pay certain types of claims 

and then seek recovery—‘‘pay and 

chase’’—in the same circumstances as 

the SMA Medicaid FFS program is 

required to do so. SMAs have options 

for ensuring that they meet the COB/ 

TPL requirements in Medicaid MCOs. 

Regardless of how SMAs choose to 

allocate responsibility for COB/TPL 

activities, the contract between the SMA 

and the MCO must list any COB/TPL 

responsibilities of the SMA and the 

MCO must list any COB/TPL 

responsibilities of the plan see for 

example, 42 CFR 438.3(t). For more 

information on general COBs/TPL 

requirements under managed care, 

please see our guidance published on 

Medicaid.gov at https://

www.medicaid.gov/medicaid/eligibility/ 

downloads/cob-tpl-handbook.pdf. 

Comment: One commenter 

recommended that CMS should ensure 

that providers bear the responsibility of 

ensuring all third parties are notified 

and payments are retrieved citing their 

belief that the burden should be 

removed from the state and federal 

government. 

Response: If there is no established 

liable third party, the state Medicaid 

agency (SMA) may pay claims to the 

maximum Medicaid payment amount 

establish for the service in the state 

plan. If the SMA later establishes that a 

third party was liable for the claims, it 

must seek to recover the payment. The 

SMA should first seek recovery from the 

liable third party. If that is not feasible 

(for example, Medicare will not accept 

a claim directly from an SMA), it may 

be necessary to recoup the payment 

from the provider and ask the provider 

to rebill correctly. Section 433.139(d)(2) 

states that SMAs must seek 

reimbursement within sixty days from 

the end of the month in which it learns 

of the existence of the liable third party. 

Comment: One commenter expressed 

concern that the proposed revisions to 

§ 433.139 will not permit states to elect 

to cost avoid claims for pediatric 

services as allowed under the BBA 

2018. The commenter stated the BBA 

allows states to pursue cost avoidance 

for pediatric services upon 

determination that cost-effectiveness 

and access to care ‘‘warrants cost 

avoidance for 90 days.’’ The commenter 

recommended that CMS revise the 

proposed provision to allow states to 

pursue cost avoidance for pediatric care. 

Response: The BBA 2018 did not 

eliminate pay and chase for pediatric 

preventive services; The BBA 2018 

amended the statute to eliminate pay 

and chase for prenatal services. 

Therefore, this request is outside of the 

scope of our regulation change authority 

under § 433.139(b)(3)(i) and the BBA of 

2018 as identified within. For additional 

guidance on this change in law, please 

see our guidance published on 

www.Medicaid.gov at https://

www.medicaid.gov/federal-policyguidance/downloads/cib111419.pdf and 

https://www.medicaid.gov/medicaid/ 

eligibility/downloads/cob-tplhandbook.pdf. 

Comment: One commenter 

recommended that CMS provide states 

with an alternative option to the 

required cost avoidance determinations 

of cost-effectiveness and access to care. 

The commenter stated that current cost 

avoidance determination process is 

burdensome for states to perform and 

recommended that CMS allow an 

alternative option where state Medicaid 

agencies may attest that their program is 

compliant, has an ‘‘exception, 

grievance, fairing hearing’’ process, and 

does not have known access issues for 

beneficiaries seeking pediatric 

preventive services. 

Response: This request is outside of 

the scope of our regulation change 

authority under § 433. 139(b)(3)(i) and 

the BBA 2018 as identified within. 

Comment: One commenter requested 

clarification from CMS on the 

application of the 100-day waiting 

period application to preventive 

pediatric services. The commenter 

indicated that the provision’s reference 

to § 433.139(b)(3)(ii)(B) appears to apply 

to child support enforcement services. 

The commenter requested CMS clarify 

whether the 100-day waiting period 

applies to both preventive pediatric 

services and child support enforcement 

services as it may impact 

implementation and cost-effectiveness. 

Response: The 100-day waiting period 

only applies to medical support 

enforcement and not preventative 

pediatric services. Preventive pediatric 

service claims must be ‘‘paid and 

chased’’ without regard to a liable third 

party unless the state has made a 

determination related to costeffectiveness and access to care that 

warrants cost avoidance for 90 days. 

Section 53102(b)(2) of the Bipartisan 

Act of 2018 delayed the implementation 

date from October 1, 2017 to October 1, 

2109 of the BBA 2013 provision, which 

allowed for payment up to 90 days after 

a claim is submitted that is associated 

with medical support enforcement 

instead of 30 days under previous law. 


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16https://www.medicaid.gov/sites/default/files/ 

Federal-Policy-Guidance/Downloads/ 

cib111419.pdf. 

Medical support is a form of child 

support that is often provided through 

an absent parents employers health 

insurance plan. Effective April 18, 2019, 

section 7 of the MSIAA amended 

section 202(a)(2) of the BBA 2013 to 

allow 100 days instead of 90 days to pay 

claims related to medical support 

enforcement under section 

1902(a)(25)(F)(i) of the Act. 

Additionally, effective October 1, 

2019, section 53102(a)(1) of the BBA 

2018 amended section 1902 (a)(25)(E) of 

the Act, to require a state to make 

payments without regard to TPL for 

pediatric preventive services unless the 

state has made a determination related 

to cost-effectiveness and access to care 

that warrants cost avoidance for 90 

days. 

Comment: One commenter noted that 

the provisions as written will not allow 

a state Medicaid agency to implement a 

cost avoidance period of less than 90 

days. The commenter noted that their 

state requires a 60-day timeframe after 

finding that a 90-day period was not 

cost-effective and that access to care 

issues may result from provider 

abrasion. The commenter requested 

clarification from CMS that state 

Medicaid agencies may continue to keep 

a shorter cost avoidance period based on 

cost-effectiveness and access to care 

evaluations. 

Response: Our November 14, 2019 16

guidance clarified that a state can allow 

up to 100 days to pay claims related to 

medical support enforcement. States are 

permitted the flexibility to pay and 

chase medical support enforcement 

claims within that 100-day time period 

if they have made a determination that 

the full waiting period creates a costeffectiveness or access to care issue. 

As background, section 53102(b)(2) of 

the BBA 2018 delays the 

implementation date from October 1, 

2017 to October 1, 2019 of the BBA 2013 

provision, which allowed for payment 

up to 90 days after a claim is submitted 

that is associated to medical support 

enforcement instead of 30 days under 

the previous law. Medical support is a 

form of child support that is often 

provided through an absent parents 

employers health insurance plan. 

Effective April 18, 2019, section 7 of 

the MSIAA amended section 202(a)(2) 

of the BBA 2013 to allow 100 days 

instead of 90 days to pay claims related 

to medical support enforcement 

pursuant to section 1902(a)(25)(F)(i) of 

the Act. We are finalizing as proposed. 

B. Changes To Address Medicaid Access 

to Drugs Using Value-Based Purchasing 

Arrangements (VBP) 

In the preamble of the COD final rule, 

in response to a comment (81 FR 5253), 

we recognized the importance of VBP 

especially when such arrangements 

benefit Medicaid patients’ access to 

drug treatments. We acknowledged that 

given the uniqueness of each VBP 

arrangement, we had to consider how to 

provide more specific guidance on the 

matter, including how such 

arrangements affect a manufacturer’s 

best price and Medicaid drug rebate 

obligations. Thereafter, we released a 

state and manufacturer notice on July 

14, 2016 (State Release 176 and 

Manufacturer Release 99) to inform 

states and manufacturers on how to seek 

guidance from us on their specific VBPs, 

as well as encourage states to consider 

entering into VBPs with manufacturers 

as a means to address high cost drug 

treatments. 

Since those releases, manufacturers 

and states have shown an increased 

interest in VBP as a potential option for 

better managing and predicting drug 

spending, which helps to assure that 

manufacturers have some vested interest 

in assuring positive patient outcomes 

from the use of their drugs. However, 

some manufacturers hesitate to offer 

VBP arrangements to payers, including 

Medicaid, because of concerns that the 

existing Medicaid COD statute and 

applicable regulations do not 

specifically address, for price reporting, 

the rebating or discounting of drugs 

based on evidence or outcomes-based 

measures. Specifically, CMS had not 

addressed the possible impact of 

offering VBP arrangements on 

manufacturer compliance with 

applicable MDRP price reporting 

obligations, including best price and 

AMP reporting. 

We support VBP because we believe 

it will assist states with providing 

Medicaid patients access to needed 

therapies while providing a payment 

arrangement that allows the state 

flexibility, including an option to only 

pay when a therapy actually works. For 

such arrangements to work for 

Medicaid, we need to consider changes 

to MDRP regulations to address 

manufacturers’ concerns with offering 

Medicaid such innovative payment 

arrangements, while also ensuring the 

required economies, efficiencies, and 

quality of care provided under the 

Medicaid program. As discussed in the 

June 2020 proposed rule, if we do not 

consider addressing a number of 

potential regulatory hurdles in this 

regulation to increase patient access to 

new medications, manufacturers may 

not be willing to offer VBP arrangements 

in the marketplace to commercial payers 

or to states. As a result, states may not 

be able to take advantage of these 

arrangements to afford new high priced 

medications such as gene and cell 

therapies, among others, limiting their 

availability to Medicaid patients. 

Subsequently, states may not be able to 

provide such methods and procedures 

relating to the utilization of, and 

payment for care and services as may be 

necessary to safeguard against 

unnecessary utilization of such care and 

services, and assure that, consistent 

with section 1902(a)(30)(A) of the Act, 

Medicaid payments are consistent with 

efficiency, economy, and quality of care. 

One potential regulatory hurdle 

manufacturers have raised with us is a 

manufacturer’s quarterly best price 

reporting. Section 1927(c)(1)(C) of the 

Act defines best price in relevant part to 

mean for a single source drug or 

innovator multiple source drug of a 

manufacturer the lowest price available 

from the manufacturer during the rebate 

period to any wholesaler, retailer, 

provider, health maintenance 

organization (HMO), non-profit entity, 

or governmental entity within the 

United States, with certain exclusions 

enumerated at sections 

1927(c)(1)(C)(i)(I) through (VI) of the 

Act. One of the issues manufacturers 

face in determining best price with the 

advent of VBP arrangements is that a 

manufacturer’s best price can be reset 

based upon the outcome of a drug 

treatment for one patient or one unit of 

the drug because of the VBP. When this 

occurs, the price for that single use of 

the drug during a quarter that resulted 

in a negative outcome will reset the best 

price to a significantly lower amount, 

sometimes zero, prompting a 

significantly higher rebate (sometimes 

100 percent of the drug’s AMP) for all 

uses of the drug during that quarter. 

This being the case, manufacturers 

have questioned how they should 

calculate best price and account for 

these units when an outcome of a VBP 

arrangement results in ‘‘a lowest price 

available’’ of zero or at a significant 

discount. Manufacturers have expressed 

concern to CMS that without further 

guidance from CMS in regulation 

regarding the determination of best 

price in this scenario, the manufacturer 

could be at risk of understating rebates 

and may potentially be subject to False 

Claims Act liability, a risk which further 

diminishes manufacturer interest in 

offering VBP payment arrangements in 

either the commercial or Medicaid 

market. In turn, this may hinder 

Medicaid access to the care and services 


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provided as part of these VBP 

arrangements (for example, to gene 

therapies and potentially curative 

orphan drug treatments) that are 

available in the general population. 

In the June 2020 proposed rule, we 

proposed changes to the MDRP price 

reporting (in particular best price) to 

address the changing market 

atmosphere and regulatory challenges 

manufacturers encounter when 

structuring and implementing VBP, and 

therefore, to give manufacturers a 

greater ability to offer these programs to 

commercial payers or Medicaid without 

the negative impact on best price or the 

potential for manufacturers’ noncompliance when calculating best price. 

1. Overall VBP Comments 

Comment: Several commenters 

supported CMS’ efforts to increase 

adoption of, and foster more meaningful 

value-based payment arrangements for, 

prescription drugs as a step to ensuring 

affordable, high value healthcare and 

lowering drug prices. Commenters 

expressed appreciation for efforts to 

relieve the regulatory requirements that 

have prevented manufacturers and 

states from developing VBP 

arrangements. A few commenters noted 

that manufacturers, commercial payers, 

state Medicaid agencies and health 

plans, and other commenters are wellsuited to negotiate VBP arrangements 

and associated measures. 

Commenters also noted that VBP 

arrangements: 

• Increase patient access to drug 

therapies, especially for breakthrough, 

gene, and other novel therapies 

including therapies for treatment of rare 

diseases. 

• Accelerate research and new 

treatment development while also 

fostering greater patient safety. 

• Support manufacturer 

accountability as a result of a sharedrisk model. 

• Promote transparency in 

manufacturers’ production processes, 

costs, and the distribution of drug 

therapies. 

• Improve healthcare system 

sustainability by decreasing overall 

treatment costs and incentivizing 

improved treatment modalities. 

• Hold drug manufacturers liable for 

drug effectiveness. 

Response: We appreciate these 

comments of support for value based 

purchasing (VBP) arrangements. 

Comment: Several commenters did 

not support the proposed rule to 

accommodate VBP arrangements due to 

concerns of unintended consequences 

on patient access to prescription drugs 

and on drug prices. Commenters 

expressed concerns that evidence and 

outcomes-based contracts do not 

address the underlying price of a 

therapy and noted the proposal does 

little to ensure that the VBP 

arrangements incentivized by the 

proposed changes to best price actually 

meet the objectives to increase 

therapeutic value while reducing cost 

for consumers and insurers. A few 

commenters noted that the proposed 

changes may allow manufacturers to 

manipulate program rules to increase 

drug prices, and therefore, increase their 

profits. Other commenters noted that 

they did not see VBP arrangements as a 

comprehensive solution to high drug 

prices and suggested that CMS 

reconsider the provisions in the 

proposed rule and take additional 

actions to control drug prices. One 

commenter expressed concern that the 

proposed rule introduced major policy 

changes without articulating substantial 

policy justifications in the proposed 

preamble text. 

A few commenters also expressed 

concern that the VBP arrangement 

proposals and the definition of such 

arrangements lack the requisite clarity 

for manufacturers to undertake the 

operational overhauls necessitated by 

these proposals. Commenters requested 

that CMS work with commenters to 

develop a more specific regulatory 

proposal and reissue a new proposed 

rule before moving forward with any 

changes. The commenter requested that 

CMS provide additional detailed 

guidance before implementing 

provisions of the rule. 

Response: We believe that access to 

pharmaceutical manufacturer VBP 

arrangements by both state Medicaid 

programs and commercial payers is one 

of many negotiating tools that payers 

may take advantage of in today’s 

pharmaceutical market. We are not 

requiring states or payers enter into VBP 

arrangements as part of this final rule. 

Instead, we are clarifying and amending 

the regulatory framework so it is 

sufficient to support such arrangements 

and to promote transparency, flexibility, 

and innovation in drug pricing without 

undue administrative burden. These 

rules clarify certain already established 

policies to assist manufacturers and 

states in participating in VBP 

arrangements in a manner that is 

consistent with the law and maintains 

the integrity of the MDRP. 

Comment: Many commenters 

expressed concerns that CMS’ proposals 

related to VBP arrangements may 

negatively impact state Medicaid 

programs in several ways including 

compromising the integrity of the MDRP 

and noting that states would likely 

experience smaller Medicaid drug 

rebates and increased Medicaid 

spending as a result of the rule if 

finalized. A few commenters 

recommended that CMS establish 

specific guardrails to ensure that state 

Medicaid programs benefit from the 

value of VBP arrangements. The 

commenters noted that manufacturers 

could reduce their Medicaid rebate 

obligations by shifting their commercial 

rebating strategy to VBP arrangements 

(sheltered from being included in best 

price) by refusing to negotiate VBP 

arrangements with state Medicaid 

programs at all. 

Commenters also noted that they 

believe the cost savings generated under 

the VBP arrangement must exceed those 

currently available under the MDRP 

framework and be inclusive of 

administrative costs to implement the 

VBP arrangement. Another commenter 

requested that CMS provide additional 

guidance on how VBP arrangements 

might address barriers to treatment that 

are unique to the Medicaid population. 

One commenter expressed concern 

that the proposed regulations will have 

serious consequences to state Medicaid 

programs and their ability to provide 

access to vital healthcare services to the 

state’s Medicaid beneficiaries. 

Response: The new VBP approach 

would build upon the approach that 

exists in current law regarding how 

manufacturers pay rebates to states for 

a dosage form and strength of a drug. 

Manufacturers are required to report a 

best price each quarter to CMS which is 

used by CMS to calculate the state’s unit 

rebate amount (URA) for the drug, and 

that reporting will continue. Under this 

new approach, manufacturers that offer 

a value based purchasing arrangement 

(as defined at § 447.502) to all states, 

may report a best price that includes 

varying best price points for a single 

dosage form and strength as a result of 

that VBP arrangement. 

Otherwise, manufacturers that do not 

offer VBP arrangements to states will be 

required to report a single best price 

(which would include all prices, 

including applicable discounts, rebates, 

or other transactions that adjust prices 

to the best price eligible entities, 

including such transactions from VBP 

arrangements not offered to states). This 

would address the commenters’ 

concerns that this approach would 

compromise the integrity of the rebate 

program, shift manufacturer rebates to 

VBP programs, or allow manufacturers 

to not offer these VBP programs to 

states. States would not be required to 

participate in these arrangements, but 

can do so if they so choose. 

Manufacturers that choose to offer their 


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VBP arrangement to the states and 

report multiple best prices would 

continue to report a non-VBP best price 

for this dosage form and strength of this 

drug for the quarter. States that opt not 

to participate in a multiple best price 

arrangement that is being offered by 

manufacturers would receive rebates 

based on the manufacturer’s non-VBP 

best price for this dosage form and 

strength of the drug. 

Therefore, each state should consider 

the value of entering into VBP 

arrangements and potential 

consequences, be it impact on access to 

health care in their state or the 

administrative costs associated with 

operationalizing a VBP arrangement, 

and make the appropriate decision for 

their state. 

Comment: One commenter requested 

that CMS maintain incentives for 

providers to choose the lower-cost 

therapeutic option that is clinically 

appropriate and for ongoing 

development of lower-cost therapies, 

including biosimilars in addition to 

permitting flexibilities around VBP 

arrangements. 

Response: This rule does not require 

providers to participate in VBP 

arrangements or to discontinue offering 

lower-cost therapeutic options when 

clinically appropriate. Like states and 

commercial payers, providers have the 

option to participate in VBP 

arrangements and may choose to forgo 

these arrangements and avail their 

patients of lower cost therapies that the 

provider believes may be just as 

effective. 

Comment: A few commenters 

requested CMS address the potential 

incentive for manufacturers to expedite 

market entry (VBP for accelerated 

approval pathway drugs) for drug 

therapies that may be the subject of a 

potential VBP arrangements. 

Response: We believe that the 

commenter may be concerned that the 

use of VBP may create incentives for 

manufacturers to attempt to use FDA’s 

accelerated approval pathway to bring a 

drug to market, and then use a VBP 

approach to market the drug as payers, 

including state Medicaid agencies, 

might not believe that the drug has a 

fully-determined clinical benefit. This 

rule does not address drug development 

and how drugs are approved for 

marketing in the United States by FDA. 

We do not believe that manufacturers 

make decisions about developing or 

marketing a drug based on the existence 

of VBP approaches. However, we do 

think that accelerated approval drugs 

might be good candidates for VBP, as 

these drugs can meet the definition of 

covered outpatient drug under the 

Medicaid Drug Rebate Program, and 

payers may want some additional 

evidence that they will be paying for a 

drug that will provide a clinical benefit 

to the patient, and thus seek a VBP 

arrangement from the manufacturer. 

Comment: A few commenters 

commented on the timing of the final 

rule and encouraged CMS to finalize the 

proposed rule this calendar year and 

develop further subregulatory guidance 

based on their belief it will improve 

access to cell and gene therapies coming 

to market. Another commenter 

recommended that CMS work through 

CMS’ Center for Medicare and Medicaid 

Innovation (CMMI) to test broader VBP 

arrangements and other payment 

innovations for drug therapies. A few 

commenters requested that CMS clarify 

that existing VBP arrangements 

established prior to the final rule will be 

grandfathered in if they are not found to 

be compliant with definitions 

articulated in the final rule. 

Response: While this rule will be 

effective 60 days after its publication, 

we are delaying the effective date of 

certain amendments in this final rule 

until January 1, 2022, including the 

policy permitting manufacturers to 

report multiple best prices under a VBP 

arrangement. This will allow 

manufacturers, states and CMS to make 

the necessary system changes, and CMS 

to issue operational guidance regarding 

the final policy permitting multiple best 

price reporting, as necessary. The 

definition of VBP arrangement will be 

effective 60 days after the rule 

publication in order to apply the 

changes made to the bundled sales 

definition as discussed later in this rule. 

While we appreciate the request to 

test these innovative payment 

arrangements, we do not believe VBP 

arrangements need to be tested under 

the CMMI authority in order to issue 

this final rule. Many state Medicaid 

programs (nine states via CMSauthorized supplemental rebates) and 

commercial payers already have VBP 

arrangements in place that have 

provided some initial evidence about 

the pros and cons of these programs. 

This final rule addresses potential 

regulatory hurdles manufacturers and 

states face when choosing to offer and 

participate in VBP arrangements. 

Comment: A commenter was 

concerned that the proposals with 

regard to VBP arrangements and the 

definition of such arrangements lack the 

requisite clarity for manufacturers to 

undertake the operational overhauls 

necessitated by these proposals. For 

example, the commenter questioned 

whether outcomes-based measurement 

metrics create bundled sales under 

arrangements that do not meet the 

proposed definition of a VBP 

arrangement (including the as yet 

undefined requirement that the 

outcomes-based measure 

‘‘substantially’’ link the cost of the drug 

to that of the drug’s actual performance). 

The commenter indicated that without 

further detail regarding the operation of 

CMS’ VBP arrangement proposals, 

manufacturers will lack the certainty 

needed to invest in operationallycomplex innovative payment 

arrangements. 

Some commenters raised concerns 

about how states will become aware that 

a manufacturer is in fact offering a 

multiple best price VBP arrangement to 

states for a drug, how such information 

will be reported to CMS and accessed by 

states, whether states and manufacturers 

would have to enter into side 

agreements regarding the VBP 

arrangement, and how such future price 

adjustments under the VBP program 

would be reported to and made by states 

and manufacturers, among others. 

Response: We understand that there 

may be unresolved issues regarding 

some aspects of the VBP policies that 

are being implemented in this 

regulation, and if necessary and 

appropriate, expect to address any such 

issues that may arise in the future 

through operational guidance. 

We note that some manufacturers 

have been using the bundled sales 

approach for VBP arrangements, under 

the reasonable assumption that a VBP 

arrangement represents a type of 

performance requirement. Regulations 

found at § 447.502 allow manufacturers 

to allocate discounts in a bundle across 

the entire bundle if tied to a 

performance requirement. After the 

regulation is finalized, any VBP 

arrangement would have to meet the 

new definition of VBP arrangement in 

order to avail itself of potential 

regulatory flexibilities, whether the 

manufacturer reports pricing using a 

bundled sale or multiple best prices 

approach (effective January 1, 2022). To 

be clear, with respect to the bundled 

sales approach, a manufacturer could 

only use the bundled sales approach, 

and thus allocate any VBP discounts 

across the products in the bundle, if the 

manufacturer’s value-based payment 

arrangement met the new definition of 

VBP arrangement, as adopted in this 

final rule as discussed below. 

We also believe that the commenter’s 

reference to operational complexity is 

referencing the technology and systems 

that may have to be developed or 

modified to accommodate the necessary 

tracking of patients that are enrolled in 

VBP arrangements. We appreciate the 


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comment, and recognize that VBP 

arrangements can be complex to design 

and implement. However, this rule does 

not require manufacturers, states or 

payers to enter into VBP arrangements 

but rather makes changes to price 

reporting requirements to allow 

manufacturers to report multiple best 

prices associated with such 

arrangements. We know that some 

Medicaid programs are already 

implementing these VBP arrangements, 

as are some commercial payers, so there 

is some experience in the marketplace 

with implementation of these programs. 

We also understand that state Medicaid 

programs, commercial payers and 

manufacturers, as well as CMS, will 

have to make some operational changes 

to accommodate the reporting of 

multiple best prices associated with 

VBP arrangements being offered to the 

states. 

We are also developing a new 

Medicaid Drug Program (MDP) system 

that will replace both the current Drug 

Data Reporting (DDR) and Medicaid 

Drug Reporting (MDR) systems, and this 

new system is expected to be fully 

functional in July 2021. We expect that 

this new system will help support the 

reporting by manufacturers of multiple 

best prices, as well as the reporting by 

CMS of VBP-related unit rebate amounts 

to the states, that would obviate the 

need for manual reporting of these 

prices by manufacturers to CMS and to 

the states. We will need to provide 

operational guidance on these and other 

related issues over the next year. 

For these and other reasons, the final 

policy permitting multiple best prices 

reporting will not be effective until 

January 1, 2022 so that all affected 

stakeholders have sufficient time to 

address these operational technology 

and system challenges. We believe that 

delaying the effective date until January 

1, 2022 after the new MDP system is 

expected to come on line will provide 

sufficient time to test the system and 

assure that it can support the new 

multiple best price reporting options. 

2. Subpart I—Payment for Drugs 

(Definitions (§ 447.502) 

a. Value-Based Purchasing (VBP) 

Arrangement 

A VBP arrangement is not expressly 

defined or addressed in section 1927 of 

the Act or the MDRP implementing 

regulations. To address the issues, we 

proposed a definition of VBP to apply, 

as appropriate, in implementation of the 

MDRP. More specifically, we proposed 

to define VBP at § 447.502 to further 

clarify for manufacturers how discounts, 

rebates, pricing etc. as a result of VBP 

arrangements should be accounted for 

in a manufacturer’s determination of 

AMP and best price for an applicable 

COD. 

At this time, manufacturers are 

permitted to make reasonable 

assumptions in the absence of 

applicable statute, regulation or 

guidance regarding how to treat pricing 

as a result of VBP. However, because of 

the uncertainty or lack of assurances as 

to the propriety of those reasonable 

assurances, we understand 

manufacturers may be discouraged from 

offering VBP to payers including 

Medicaid. Therefore, we proposed to 

define VBP as an arrangement or 

agreement intended to align pricing or 

payments to an observed or expected 

therapeutic or clinical value in a 

population (that is, outcomes relative to 

costs) and includes (but is not limited 

to): 

• Evidence-based measures, which 

substantially link the cost of a drug 

product to existing evidence of 

effectiveness and potential value for 

specific uses of that product; 

• Outcomes-based measures, which 

substantially link payment for the drug 

to that of the drug’s actual performance 

in a patient or a population, or a 

reduction in other medical expenses. 

We have observed that some examples 

of evidence or outcomes-based measures 

used by manufacturers in their VBP 

proposals may be derived by observing 

and recording the absence of disease 

over a period of time, reducing a 

patient’s medical spending, or 

improving a patient’s activities of daily 

living thus resulting in reduced nonmedical spending. In response to the 

proposed definition of VBP, we solicited 

suggestions for other measures and a 

rationale for the suggested measures that 

could be used to reflect value from a 

drug therapy and considered as we 

develop a final definition. We also 

solicited suggestions as to how to 

interpret ‘‘substantially’’ as used in the 

definition. That is, how much of the 

drug product’s final cost should be 

associated with the evidence or 

outcomes based measure in order for the 

arrangement to be considered a VBP (for 

example, a drug product cost with less 

than 90 percent of the discounts/rebates 

tied to the drug’s performance not be 

considered a VBP arrangement). 

a. Definition of VBP Arrangement 

Comment: Many commenters 

encouraged CMS to maintain a broad 

definition of VBP arrangements and 

expand the definition to ensure that all 

contracting parties have the flexibility 

needed to develop arrangements that 

best meet their priorities for a wide 

range of drug therapies, including cell 

and gene therapies, as well as oral 

small-molecule drugs dispensed in 

retail settings based on their belief that 

evidence and/or outcomes-based 

approaches can be used independent of 

whether a drug is or is not classified as 

specialty. A few commenters requested 

that CMS clarify that VBP arrangements 

are not limited to one-time, high-priced 

therapies to enable use of these 

arrangements for therapeutic areas that 

require recurring treatment, have a 

substantial prevalence and overall 

disease burden to patients, and/or drive 

substantial cost to Medicaid and payers 

(for example, chronic condition). 

However, several commenters 

expressed concern with CMS’ proposed 

definition of VBP arrangements because 

they noted it was not detailed enough to 

operationalize and had potential for 

fraud, waste, and abuse. One commenter 

further noted that the proposed 

definition does not include any 

guardrails or features to ensure that VBP 

arrangements meet reasonable 

thresholds for providing value for a 

drug. 

A few commenters requested CMS to 

revise the definition to reflect the 

following: ‘‘An arrangement or 

agreement intended to align pricing 

and/or payments to observed or 

expected therapeutic or clinical values 

in select populations (that is, outcomes 

relative to costs) and including (but not 

limited to): Evidence-based measures, 

which link the cost of drug products to 

existing evidence of effectiveness and 

potential value for specific uses of 

products included under the 

arrangement; Outcomes-based measures, 

which link drug costs to the actual 

performance (actual endpoints and 

direct or indirect surrogate markers, 

including duration of therapy or 

discontinuation) in a patient or a 

population, or a reduction in other 

medical expenses.’’ One commenter 

recommended that CMS review current 

state VBP arrangements to refine the 

proposed definitions. 

Several commenters emphasized the 

need to maintain the option for VBP 

arrangements to include evidence- or 

outcomes-based measures to provide 

maximum flexibility for payers and 

manufacturers when negotiating 

contracts. The commenters requested 

that CMS include an ‘‘or’’ between the 

two examples of measures to make clear 

that both are not required for VBP 

arrangements. A few commenters 

recommended that CMS only consider 

outcomes-based measures for VBP 

arrangements eligible for alternative best 

price calculations. One commenter 

noted that the parenthetical phrase, 


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‘‘that is, outcomes relative to costs’’ is 

confusing and should be removed from 

the definition. 

One commenter recommended that 

CMS only allow outcomes-based VBP 

arrangements to be allowed to perform 

alternative best price calculations based 

on their belief that they are likely to 

have significant best price implications 

from a single sale. The commenter 

distinguished outcomes-based VBP 

arrangements from evidence-based ones 

further, expressing their opinion that 

evidence-based contracts are more likely 

to have a value-based price across 

multiple sales. One commenter 

suggested CMS should require 

manufacturers to demonstrate a drug’s 

outcome effectiveness prior to market 

entry. The commenter noted that this 

change will enable payers to negotiate 

payments based on proven outcomes. 

Response: We believe the definition of 

VBP arrangement is sufficiently broad to 

include most VBP structures currently 

on the market and would not exclude 

specific drugs on the market—be it 

highly utilized drugs that treat large 

populations for chronic conditions or 

one-time gene therapies that are used in 

small populations. Therefore, we are 

maintaining a broad definition to ensure 

such arrangements are recognized for 

purposes of determining and reporting 

best price and AMP; however, we agree 

with commenters that the evidence or 

outcomes-based measures used in a VBP 

arrangement should be evaluated in a 

select population and are therefore 

adding the term ‘‘select’’ before 

populations to clarify that VBP 

arrangements are arrangements that are 

specific to select population groups 

using the drug therapy (for example, 

gene therapy specific to a specific 

cancer type). We are also adding ‘‘and/ 

or’’ between the two measures in the 

definition to further clarify that either 

evidence-based and/or outcomes-based 

measures could be used in a VBP 

arrangement. Furthermore, we agree that 

the parenthetical ‘‘that is, outcomes 

relative to costs’’ is confusing given 

outcomes measures is already part of the 

definition of VBP arrangement. 

Therefore, we are removing it to reduce 

redundancy. Also, in response to 

commenters concerns that the drug 

covered by the VBP arrangement has 

demonstrated effectiveness, we are 

clarifying that VBP arrangements apply 

to CODs as defined at section 1927(k)(2) 

of the Act. 

Comment: One commenter requested 

CMS to clarify the definition of the 

terms ‘‘effectiveness’’ and 

‘‘performance’’ within the definition of 

VBP arrangement. 

Response: We do not agree that the 

definition of VBP arrangement should 

be revised to further define 

‘‘effectiveness’’ or ‘‘performance.’’ Each 

VBP arrangement will be fact-specific to 

the drug, the diagnosis it is treating, and 

patient population being treated, and we 

expect such terms will be defined as 

part of the VBP agreement itself. 

Comment: A few commenters 

recommended that CMS use an 

alternative term to ‘‘value-based 

purchasing arrangements.’’ Commenters 

recommended that CMS use ‘‘valuebased pricing’’ arrangements to reflect 

that VBP arrangements can be entered 

into between manufacturers and 

customers that do not ‘‘purchase’’ a 

product (for example, payers). A few 

commenters recommended that CMS 

use ‘‘value-based arrangements,’’ or 

VBAs, to reflect common industry 

terminology. One commenter requested 

that CMS use ‘‘value-based contracts,’’ 

or VBCs, instead. 

Response: For the purpose of this 

rule, we will continue to use the term 

value-based purchasing (VBP) 

arrangement as proposed. However, we 

recognize there may be arrangements 

already available on the market that 

manufacturers may label differently, yet 

still align with the definition of VBP 

arrangement as finalized in this rule. 

Comment: One commenter 

recommended that CMS require VBP 

arrangements to include minimum, 

maximum, and expected percentage 

rebates that will be offered and limit 

permissible VBP arrangements to drugs 

meeting certain characteristics, such as 

a floor for average annual cost, course of 

treatment cost, and/or genetic therapies 

and other similarly specialized drugs. 

Response: CMS will not be requiring 

manufacturers offer specific percentage 

rebates or limit VBP arrangements to 

only certain drugs as part of the 

definition of VBP arrangement. Instead 

we will be maintaining a broad 

definition of VBP arrangement so that 

manufacturers and payers (including 

states) have the flexibility to design the 

VBP arrangement, taking into 

consideration the specifics of the drug 

treatment and patient population 

served. The final definition will include 

the language that there be a substantial 

link between an outcomes-based 

measure and the payment for the drug; 

or, evidence-based measure and the cost 

of the drug as discussed later in this 

preamble. 

b. Evidence-Based Measures 

Comment: Several commenters either 

supported or did not support the 

inclusion of evidence-based measures in 

the definition of VBP. 

Commenters that supported the 

inclusion of evidence-based measures 

noted it was sufficiently flexible to 

account for the breadth of potential 

measures that may be considered in 

VBP arrangements. A few commenters 

urged CMS to preserve a broad 

definition of evidence-based measures 

to allow manufacturers and payers to 

identify appropriate measures for each 

VBP arrangement, tailored to a 

particular drug therapy and patient 

population. Another commenter 

suggested that CMS ensure that the 

definition of evidence-based measures 

be sufficiently broad to allow clinical 

endpoints and direct or indirect 

surrogate endpoints to be used in VBP 

arrangements. Commenters also noted 

that use of evidence-based measures is 

already allowed under current best price 

reporting requirements and CMSauthorized supplemental rebate 

agreements (SRAs). 

Some commenters did not support 

CMS’ inclusion of ‘‘evidence-based 

measures’’ in the definition of VBP 

arrangements, claiming the inclusion of 

such measures leaves the VBP 

arrangement definition excessively 

broad. The commenters stated that the 

inclusion of evidence-based measures is 

unnecessary because these measures are 

currently used to negotiate regular 

discounts for formulary or preferred 

drug list (PDL) placement between 

manufacturers and commercial payers 

or states. Several commenters noted that 

including evidence-based measures in 

the definition of VBP arrangements will 

likely undermine best price reporting 

requirements and allow manufacturers 

to reduce their Medicaid rebate 

obligations. 

A few commenters opposed inclusion 

of evidence-based measures in the 

definition of VBP arrangements because 

they noted that CMS did not provide 

sufficient details in the proposed rule. A 

few commenters expressed concern 

with the proposed inclusion of 

evidence-based measures in the 

definition of VBP arrangements citing 

their belief that the administrative 

burden associated with reporting will be 

significant. One commenter noted that 

the inclusion of evidence-based 

measures in the definition of VBP is 

redundant based on their belief that 

external entities like the Institute for 

Clinical and Economic Review (ICER) 

already account for evidence-based 

measures. 

Some commenters requested that 

CMS clarify that evidence-based 

measures may be based on a limited 

clinical data set, health economics, 

outcomes research or other documented 

evidence. A few commenters also 


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encouraged CMS to clarify that clinical 

effectiveness is defined more broadly 

than required under FDA regulatory 

requirements and requested that CMS 

provide clarity on how clinical 

effectiveness will be determined, 

especially for new drugs. 

Other commenters requested CMS to 

require evidence-based measures be 

developed through a patient-centered 

approach that requires patient input on 

measure selection and desired 

outcomes. Several commenters 

emphasized the importance of CMS’ 

consideration of a patient-centered 

approach to measuring value because 

they noted that they believe in the need 

for patients to be involved throughout 

the design of VBP arrangements, 

including the selection of measures that 

are important and relevant to patients. 

A few commenters recommended that 

CMS include patient-reported measures 

that signal improvement in patient 

health or quality of life as an indicator 

of a drug’s value. One commenter 

suggested that long-term benefits for 

patient health, or durability, also be 

considered to measure value. 

One commenter encouraged CMS to 

provide guidance refining the definition 

of evidence-based measures in the 

context of therapies treating rare 

diseases with limited availability of data 

and small target populations that 

require highly personalized treatment. A 

few commenters noted that they believe 

there are often limited evidence-based 

measures for rare disease groups given 

limited natural history data, small 

patient populations and other 

challenges. 

Response: We appreciate the 

comments regarding the use of 

evidence-based measures as part of the 

definition of a VBP arrangement, but we 

will not be revising the definition to 

provide additional refinement to what is 

meant by evidence-based measures. We 

believe further clarification to the term 

evidence-based measures will 

unnecessarily limit the potential for 

VBP arrangements using such measures. 

While we support VBP arrangements 

that establish evidence-based measures 

using patient-centered approaches such 

as quality of life indicators and believe 

that evidence-based measures must be 

based on clinical data sets and 

documented evidence, we believe 

determining the appropriate features of 

a VBP arrangement are more 

appropriately left to the manufacturer 

and further negotiated with the payer 

(be it a health plan, provider, or 

patient). 

Comment: A few commenters noted 

that the proposed definition of 

evidence-based measures could result in 

inconsistent interpretations of 

requirements for best price calculations 

between manufacturers, which may 

result in a smaller rebate obligations 

under VBP arrangements as compared to 

current Medicaid supplemental rebate 

agreements (SRAs). 

Response: There may be differences 

between rebates offered under a CMSauthorized SRA and the VBP 

arrangements under the multiple best 

price approach. States will be in the best 

position to determine which 

arrangement meets the financial and 

patient care needs of their state’s 

Medicaid program. A state is not 

required to participate in a 

manufacturer’s VBP arrangement as 

offered on the commercial market. They 

may negotiate their own arrangement 

under a CMS-authorized SRA, and those 

arrangements do not have to meet the 

definition of VBP arrangement. States 

may choose to negotiate participation in 

both types of arrangements as well. 

However, a manufacturer who wishes to 

utilize the multiple best price approach 

or the bundled sales approach must 

ensure that their VBP arrangements 

satisfies the definition of a VBP 

arrangement in this final rule, and with 

respect to using the best price reporting 

flexibilities, offer such VBP 

arrangements to all states, in order to 

avail themselves of such regulatory 

flexibilities. 

Comment: One commenter requested 

CMS to clarify that VBP arrangements 

that rely solely on evidence-based 

measures are sufficient to meet the 

proposed definition of VBP 

arrangements. The commenter further 

noted that there may be circumstances 

in which the combination of evidence 

and outcome-based measures may not 

be feasible. 

Response: VBP arrangements may be 

based on either evidence-based or 

outcomes-based measures or both, as 

provided in the final definition of a VBP 

arrangement. 

Comment: One commenter 

recommended CMS clarify in the final 

rule that the list of evidence-based 

measures in the preamble to the 

proposed rule is not an exhaustive list 

of acceptable measures to meet the 

definition of VBP arrangements. 

Response: The commenter is correct 

that the list of examples provided in the 

preamble to the proposed rule (85 FR 

37292) is not an exhaustive list of 

evidence-based measures and CMS does 

not intend to further define or limit 

evidence-based measures based upon 

these examples as part of this final rule. 

Therefore, manufacturers may make 

reasonable assumptions, in the absence 

of any further guidance on such 

measures; as part of their 

determinations as to whether an 

arrangement satisfies the definition of a 

VBP arrangement and retain such 

documents in accordance with 

recordkeeping requirements at 

§ 447.510(f). 

Comment: One commenter suggested 

that CMS require VBP arrangements to 

be either cost-based or outcomes-based 

unless the state Medicaid agency finds 

an evidence-based VBP arrangement to 

be appropriate. It is the opinion of the 

commenter that evidence-based 

measures alone are not sufficient to 

ensure value. 

Response: We will not be requiring 

the VBP arrangements be cost-based or 

outcomes-based as part of this final rule. 

Furthermore, states will not be required 

to enter into a VBP arrangement in 

instances when the state does not agree 

with entering into an evidence-based 

VBP arrangement. 

c. Outcomes-Based Measures 

Comment: Several commenters 

requested CMS provide additional 

clarification regarding what is meant by 

outcomes-based measures in VBP 

arrangements. Commenters indicated 

that outcomes measures should be 

easily measurable, clinically relevant, 

and associated with clinical and/or 

financial improvements and must rely 

on documented evidence. One 

commenter expressed concern that the 

proposed rule did not provide 

information around the process for 

developing performance (outcomes) 

measures and how those measures will 

be established for new treatments. 

Other commenters supported 

maximum flexibility in CMS’ proposed 

definition of outcomes-based measures 

to account for the breadth of potential 

measures, diseases, and populations 

that may be considered in VBP 

arrangements. 

Response: We are not defining what is 

meant by outcomes-based measures as 

part of the definition of VBP 

arrangement, or a process to develop 

such measures. With this final rule, we 

intend to provide the greatest flexibility 

to manufacturers and states (and other 

payers) to develop and design VBP 

arrangements, as appropriate. We 

believe that a broad definition of VBP 

arrangement allows manufacturers and 

payers to develop, structure and 

implement VBP arrangements in the 

ever-evolving health care environment, 

as well as allow manufacturers and 

payers to consider future changes in the 

scope and nature of such arrangements. 

Providing overly prescriptive 

performance or outcomes-based 

measures to be used by manufacturers 


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17https://www.federalregister.gov/documents/ 

2019/10/17/2019-22027/medicare-and-statehealthcare-programs-fraud-and-abuse-revisions-tosafe-harbors-under-the. 

and payers in these arrangements may 

impede this flexibility. 

Comment: A few commenters 

recommended that CMS clarify the 

difference between evidence-based and 

outcomes-based measures included in 

the proposed definition of VBP 

arrangements. One commenter 

suggested that the proposed definition 

of both measures included confounding 

language based on their belief that 

performance measures in outcomesbased arrangements are based on 

effectiveness derived from evidence. 

Response: We do not believe 

additional clarification is necessary to 

distinguish between evidence-based and 

outcomes-based measures within the 

definition, as doing so may impede 

manufacturer and payers ability to 

negotiate VBP arrangements. We believe 

that the final definition of VBP 

arrangement provides manufacturers 

and payers substantial flexibility to 

develop, structure and implement VBP 

arrangements in the evolving health care 

environment, and the capacity to adapt 

future changes in the scope and nature 

of these programs. An example of an 

evidence-based measure is a situation 

where a manufacturer may use 

documented evidence that its cancer 

drug results in complete remission for 

80 percent in a population. The 

manufacturer may then negotiate with 

the payer that if 80 percent of the 

payer’s patients do not enter complete 

remission as based on this evidencebased measure, the payers cost of the 

drug will be rebated for a portion of 

their patient’s population. On the other 

hand, an example of an outcomes-based 

measure is that the manufacturer and 

payer agree to a payment based upon 

whether or not a patient reaches an 

agreed upon clinical outcome. The 

outcome may include a reliance upon 

documented evidence or not. 

Comment: One commenter 

recommended that CMS remove from 

the outcomes-based part of the 

definition of VBP arrangement 

‘‘reduction in other medical expenses’’ 

and replace it with ‘‘an impact to other 

medical expenditures’’ based on their 

belief that it will provide more 

flexibility to payers and manufacturers. 

Response: We decline to make this 

change as the phrase ‘‘an impact to 

other medical expenditures’’ is overly 

broad and could be interpreted to mean 

something other than decreases to 

medical expenditures. For example, 

‘‘impact’’ to other medical expenditures 

could mean that medical expenditures 

could increase under a VBP 

arrangement. This would seem to be 

counter intuitive to the use of VBP 

arrangements. For example, a 

manufacturer may offer a VBP 

arrangement for a drug that will keep 

the patient out of the hospital, or require 

fewer emergency room visits. If the use 

of the drug did not reduce these other 

health care expenditures, then payers 

may not be willing to enter into these 

arrangements or discontinue 

participation. We believe that the 

reduction in other medical expenses 

should be a primary outcome of the use 

of VBP arrangements. 

Comment: Several commenters 

suggested various types and 

considerations for selecting outcomesbased measures, including diseasespecific measures, patient or population 

total cost of care, healthcare utilization 

rate, clinical and direct or indirect 

surrogate endpoints, biomarkers, 

survival and recovery, cure rate, adverse 

event rates, laboratory values, quality of 

life, medication adherence, drug 

persistence, or tied to additional doses 

of therapy. A few commenters 

encouraged CMS to require alternative 

treatments to be considered when 

developing VBP arrangements, in 

particular comparing cost and outcomes 

of new treatments to existing therapies. 

One commenter recommended that 

outcomes-based measures adhere to the 

HHS OIG’s October 2019 proposed rule 

(84 FR 55694; RIN: 0936–AA10) 17

requiring outcome measures grounded 

in legitimate, verifiable data or other 

information from a credible external 

source (such as a medical journal, social 

sciences journal, or scientific study), an 

established industry quality standards 

organization, or results of a payor or a 

CMS-sponsored model or quality 

program. 

Response: We appreciate these 

recommendations but do not believe we 

need to revise the definition of a VBP 

arrangement to account for these 

considerations. The manufacturers will 

enter into these agreements with 

commercial payers and state Medicaid 

programs, and we encourage the 

manufacturers to work very closely with 

payers and patient groups when 

developing their VBP arrangements in a 

process that is transparent and free of 

financial conflict such that there is 

confidence in the outcomes-measures 

chosen. 

Comment: A few commenters 

requested that CMS allow VBP 

arrangements to be evaluated with 

outcomes-based measures that were not 

included in clinical trials and provide 

guidance on how manufacturers should 

report initial prices under a VBP 

arrangement if those prices vary based 

on patient outcomes that were not 

documented during clinical trials. The 

commenter noted that narrowing VBP 

arrangements to evidence generated in a 

limited number of single trials will limit 

VBP arrangements and fail to meet 

desired patient outcomes. 

Response: We appreciate the 

commenter’s suggestions. We hope that 

manufacturers and payers will take note 

of them. However, we do not believe we 

need to revise the definition of a VBP 

arrangement to account for these 

considerations. Manufacturers and 

payers will determine the development 

and evaluation of these VBP 

arrangements, and determine whether 

such VBP arrangements satisfy the 

regulatory definition and avail 

themselves of the regulatory flexibilities 

being finalized in this final rule, as 

appropriate. 

Comment: A few commenters 

expressed concern that the proposed 

outcomes-based measures included in 

the proposed definition of VBP 

arrangements may not align well with 

rare diseases, especially if the outcomesbased measure(s) is further restrictive. 

The commenter also claimed that rare 

disease products are developed through 

the Accelerated Approval Pathway, and 

thus limited clinical data is available at 

the time when an application is 

reviewed and approved. One 

commenter suggested that reliance 

solely on clinical outcome assessments 

for small patient populations may 

obscure a therapy’s true value and 

patient feedback when evaluating VBP 

arrangements. 

Response: We believe that drugs for 

rare diseases approved under FDA’s 

accelerated approval authority could 

make good candidates for VBP 

arrangements for the very reason that 

the commenter mentions. FDA approval 

in these instances may be dependent 

upon further studies to confirm the 

clinical benefit of the drug. The VBP 

program could, for example, have some 

connection to the manufacturer 

completing these additional studies, or 

be based on the evidence from the 

additional trials that the manufacturer is 

conducting during the period of the VBP 

arrangement. 

Comment: A few commenters 

recommended that CMS clarify in the 

final rule that outcomes-based measures 

based upon quality of life or age are 

discriminatory and devalue the lives of 

persons with disabilities and older 

adults. Another commenter encouraged 

CMS to require that VBP arrangements 

account for complex conditions 

experienced by Medicaid beneficiaries, 


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including mental illness, and account 

for how those medical comorbidities 

may affect outcomes. 

Response: We appreciate these 

comments regarding outcomes-based 

measures and how they should not 

discriminate against certain 

populations. In accordance with legal 

obligations under section 504 of the 

Rehabilitation Act, the Americans with 

Disabilities Act, the Age Discrimination 

Act, and section 1557 of the Affordable 

Care Act, manufacturers and payers, 

including state Medicaid agencies, may 

not make use of measures that would 

unlawfully discriminate on the basis of 

disability or age when designing or 

participating in VBP arrangements. 

d. Defining Substantially Under VBP 

Arrangement Definition 

Comment: A few commenters 

encouraged CMS to include input from 

patient groups and the National Health 

Council (NHC) when defining the term 

substantially. The commenters 

recommended CMS consider the NHC’s 

patient-centered approach to 

establishing criteria for ‘‘substantially’’, 

including the six domains of patient 

partnership, transparency, 

representativeness, diversity, outcomes 

that patients care about, and patientcentered data sources and methods. 

Response: While we appreciate the 

recommendation, we will not further 

define the term ‘‘substantially’’ as used 

in the definition of VBP arrangement in 

this final regulation. Instead, we expect 

information regarding the link between 

the evidence or outcomes-based 

measures will be included in the VBP 

arrangement itself and that 

manufacturers will retain records of 

how the measures link to the payment/ 

cost of the drug consistent with the 

recordkeeping requirements at 

§ 447.510(f). For example, a drug sale 

may be subject to two types of sales 

arrangements: A 5 percent discount 

based upon formulary placement and 50 

percent rebate linked to an outcomesbased measure. The second arrangement 

would be a VBP arrangement because 

there is a substantial link between the 

cost of the drug and the outcome. CMS 

may consider providing additional 

examples in subregulatory guidance as 

more arrangements become available 

and we gain more experience on the 

various arrangements available or 

offered in the marketplace. 

Comment: Several commenters 

recommended potential prescriptive or 

percentage thresholds to define 

substantially or that CMS further define 

the term substantially in regulation 

while some commenters noted they 

believe a prescribed percentage would 

be arbitrary. 

Specifically, a few commenters 

recommended that CMS establish a 

minimum threshold at the current 

mandatory rebate percentages of AMP 

(that is, 23.1 percent of AMP for single 

source or innovator multiple source 

drugs or 17.1 percent of AMP for drugs 

for pediatric indications or eligible 

clotting factors) to define substantially. 

The commenters claimed this will 

ensure the Medicaid program is eligible 

to receive larger rebates and will ensure 

the amount of risk and discounts during 

VBP arrangement negotiations will be 

acceptable to payers and manufacturers. 

A few commenters recommended that 

CMS define ‘‘substantially’’ as a 

maximum possible discount that is 

greater than the current minimum 

mandatory rebate percentages, where 

the maximum possible discount 

accounts for all VBP arrangement and 

all non-VBP arrangement best priceeligible discounts. They noted that 

under the scenario where the maximum 

possible discount is less than the 

applicable mandatory rebate percentage 

of AMP, Medicaid URA calculations 

will align with current statutory 

requirements, eliminating the need for 

regulatory relief to promote VBP 

arrangements under the proposed rule. 

A few commenters requested that 

CMS define ‘‘substantially’’ by requiring 

a threshold average of at least 50 percent 

of AMP over the life of a VBP 

arrangement. The commenters noted 

this threshold will allow manufacturers 

and payers the flexibility to adjust the 

rebate percentage throughout the 

agreement. A few commenters 

recommended that CMS ensure a robust 

definition of substantially and apply a 

‘‘significantly high threshold.’’ The 

commenters stated that a high threshold 

will disincentivize gaming on the part of 

manufacturers seeking to reduce rebate 

obligations. 

One commenter suggested that CMS 

set the threshold for ‘‘substantially’’ at 

greater than 33–50 percent of the 

ingredient cost of a drug rather than the 

current minimum mandatory rebate 

percentages. The commenter noted this 

threshold will allow payers to hold 

manufacturers accountable for the value 

of drugs. One commenter noted that if 

CMS includes the term ‘‘substantially’’ 

in the final rule, CMS should set the 

threshold at a minimum of 25–30 

percent of AMP based on their belief 

that it will incentivize broader uptake of 

VBP arrangements. One commenter 

suggested that CMS define substantially 

with a threshold of at least 80 percent. 

Another commenter requested that CMS 

consider the dictionary definition of the 

term ‘‘substantially’’ to leverage an 

ordinary meaning of the term for the 

final rule. 

However, many commenters 

expressed concern with CMS’ 

application of a prescriptive or 

percentage threshold to define the term 

‘‘substantially’’. Several commenters 

suggested that a percentage threshold 

will be arbitrary and could stifle 

innovative contracting arrangements 

and if CMS were to define examples of 

a VBP arrangement narrowly, by 

reference to a specific or high 

percentage threshold, manufacturers 

could be led to believe they can no 

longer subject VBP arrangements that do 

not meet that threshold to bundled sale 

treatment. 

A few commenters recommended that 

CMS delay defining ‘‘substantially’’ 

until after the final rule when 

commercial and Medicaid payers gain 

additional experience with VBP 

arrangements. 

Response: We appreciate the 

recommendations from commenters on 

how CMS should define substantially 

when it comes to the manufacturer 

determining if it is offering a VBP 

arrangement. 

First, we appreciate the commenters’ 

concern that the manufacturer’s VBP 

arrangement provide at least the 

minimum Federal Medicaid rebate as 

determined in accordance with 

§ 447.509, and that any additional VBP 

rebates paid to the state by a 

manufacturer over time as a result of the 

VBP arrangement be additive to that 

rebate. We want to assure states that the 

minimum rebate that the states would 

receive in the quarter in which the drug 

is administered, whether under a VBP 

arrangement or non-VBP program, 

would be the minimum Medicaid 

rebate—that is, a rebate for single 

source/innovator multiple source drugs, 

equal to the greater of the minimum 

23.1 percent of AMP or the difference 

between the AMP and ‘‘best price’’ in a 

quarter for a dosage form and strength 

of a drug. 

Should the state participate in a VBP 

arrangement for which the manufacturer 

reports multiple best prices, the state 

will at least receive the Federal 

Medicaid rebate based upon the nonVBP best price in the quarter in which 

the drug is administered, and additional 

rebates based upon the multiple best 

prices reported as a result of the 

manufacturer VBP arrangement, if the 

state has opted to participate in the VBP 

arrangement and therefore, eligible to 

receive such additional rebates under 

the VBP arrangement. 

If the state is participating in a VBP 

arrangement under a CMS authorized 


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supplemental rebate program, that statenegotiated supplemental rebate as a 

result of the VBP arrangement is 

supplemental to the Federal Medicaid 

rebate, as well as exempt from AMP and 

best price. A VBP arrangement offered 

pursuant to a CMS-authorized 

supplemental rebate agreement should 

not be confused with a VBP 

arrangement that satisfies the regulatory 

definition of such that is being finalized 

in this rule. 

With respect to designating an actual 

rebate percentage that would represent 

a ‘‘substantial’’ link to satisfy the new 

VBP definition, this will likely be a 

function of several factors, including the 

number of patients that might be 

enrolled in the health plan as well as the 

evidence of the drug’s effectiveness, 

among others. For a plan with a few 

number of patients, for a drug with 

limited clinical evidence, the threshold 

of a ‘‘substantial’’ link would likely be 

different than a plan with a significant 

number of patients, for a drug with 

significant clinical evidence. The 

amount could even be different for the 

same drug. Therefore, it would be 

difficult to designate an amount or range 

of rebates that might represent a 

substantial link. 

After further consideration of the 

commenters’ recommendations, we will 

not be defining substantially or 

requiring a specific percentage 

threshold to determine whether or not 

there is a substantial link between the 

cost/payment for the drug and either of 

the measures in the definition of VBP 

arrangement. We do not want the 

manufacturer and the payer (state or 

otherwise) to be held to a specific 

threshold when making the 

determination as to the link between the 

cost/payment for the covered outpatient 

drug and outcome within the agreement 

and believe the parties involved should 

have the flexibility to determine the 

link. As stated earlier, VBP 

arrangements are voluntary and payers, 

including states, will not be required to 

participate in them if they believe the 

arrangement does not result in a price 

they are willing to pay. Also, we 

provided an example in the proposed 

regulation that used a 90 percentage 

threshold as an example of a possible 

‘‘substantial’’ financial link between the 

expected outcome of a therapy in a 

patient and the compensation that a 

manufacturer might be expected to 

provide to a payer if the drug didn’t 

meet the expected outcomes. That is, 

the manufacturer would refund 90 

percent of the initial purchase price to 

the payer if the therapy failed. The 90 

percent example that was provided was 

an illustration of a substantial financial 

link for a VBP arrangement and was not 

meant to be a firm regulatory threshold 

for the establishment of a VBP 

arrangement. The example demonstrates 

further that the intent of a VBP 

arrangement is that the cost/payment for 

the covered outpatient drug is driven by 

the outcome in the arrangement and that 

the cost/payment for a drug that is 

driven by other factors beyond the 

outcomes or evidence-based measures 

would not qualify the VBP arrangement 

under our definition. Therefore, 

manufacturers should ensure that in 

order to satisfy the definition of a VBP 

arrangement under our rules, any 

arrangement they have as a VBP 

arrangement with payers, provides that 

the cost/payment is substantially linked 

to outcomes. 

Since we are not further defining 

‘‘substantially’’ as part of this final rule, 

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. Manufacturers should 

continue to maintain records of 

reasonable assumptions consistent with 

Federal recordkeeping requirements at 

§ 447.510(f). We may also consider 

issuing further subregulatory guidance 

on policy and operational issues relating 

to the definition of VBP arrangement 

given the nature and scope of the 

various arrangements coming to the 

market. We note that VBP arrangements 

offered on the commercial market before 

this regulation that do not meet the new 

regulatory definition of VBP 

arrangement (which goes into effect 

within 60 days of the publication of this 

final rule) will have to be restructured 

to meet the new definition and 

requirements of this final regulation if a 

manufacturer wants to take advantage of 

the regulatory flexibilities included in 

this final rule. Since the revised 

definition of VBP arrangement does not 

apply to arrangements negotiated under 

a CMS-authorized supplemental rebate 

agreement, those arrangements will not 

need to be restructured. 

e. Other Measures of Value 

Comment: A few commenters 

recommended CMS consider certain 

measures of value such as work 

productivity, patient satisfaction with 

treatment, and medical spending to 

assess a drug’s value. A few commenters 

suggested that CMS consider healthcare 

utilization like reduction in 

hospitalization rates and emergency 

department visits as a measure of a 

drug’s value. One commenter noted 

further that a reduction of utilization of 

services should be controlled for 

maintenance of healthcare quality 

standards. A few commenters identified 

measures like laboratory tests or 

screenings or use of electronic health 

records (EHRs) as measures of a drug’s 

value based on their belief that such 

measures incentivize providers to give 

high quality care. A few commenters 

recommended that CMS consider 

disease-specific measures to measure 

value for patients with rare disorders, 

including rare cancers, because they 

believe they are inherently diseasespecific and highly variable across 

patients. 

Some commenters recommend 

revising the VBP arrangement definition 

to include individual patient costlimiting arrangements that reduce 

pricing for an individual patient for 

greater-than-expected usage based on 

available evidence, discounts based on 

the achievement of patient-testing 

benchmarks, patient-reported measures 

that signal improvement in patient 

health or quality of life as an indicator 

of a drug’s value and expected 

therapeutic, clinical, or patient-centric 

value in a population. 

Other commenters recommended that 

CMS measure the value of a particular 

drug by comparing its performance to a 

competing therapy or treatment option. 

One commenter noted that such a 

comparison will facilitate the 

cultivation of comparative effectiveness 

research available for drug therapies. 

One commenter recommended 

comparative effectiveness of target 

immunomodulatory treatments in 

particular for the psoriatic disease 

community. 

Response: We appreciate the 

suggestions raised by the commenters 

and believe that all of these measures 

could be used by a manufacturer and 

payer as part of a VBP arrangement; 

however, we will not be amending the 

regulatory text to further define value. 

While we will not be specifically 

directing manufacturers to use specific 

measures as part of an arrangement in 

order to meet the definition of VBP 

arrangement, we believe these 

recommendations may be considered in 

the structuring of VBP arrangements as 

manufacturers and payers negotiate 

arrangements specific to a particular 

drug treatment. After reading all the 

comments, and reflecting on the best 

approach to help make these VBP 

arrangements succeed, we believe that 

the key is giving the most flexibility to 

payers and manufactures in structuring 

these arrangements. Each VBP 

arrangement is fact-specific; therefore, 

the recommended measures to assess a 

drug’s value will be driven by a number 


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of factors including, but not limited to, 

the drug’s indication, patient population 

treated, the availability of clinical 

evidence for the drug, and treatment 

setting. Therefore, we are not revising 

our proposed definition of a VBP 

arrangement to require specific 

measures beyond outcomes-based or 

evidence based measures. 

Comment: Many commenters 

provided suggestions for other measures 

that could be used to reflect the value 

of a drug therapy. A few commenters 

recommended that CMS consider total 

cost of care as an additional measure of 

value tied to cost savings resulting from 

VBP arrangements and should involve a 

comparison of the total cost of care 

(inclusive of medical and pharmacy 

costs) to a payer for a patient (or cohort 

of patients) who is prescribed the 

contracted drug to another patient (or 

cohort) with equivalent disease type and 

severity that is not prescribed the drug. 

Another commenter further 

recommended that CMS require 

manufacturers to report cost savings for 

VBP arrangements prior to and after a 

VBP arrangement was implemented to 

promote transparency. One commenter 

also noted that a reduction in total cost 

of care should be controlled for 

maintenance of healthcare quality 

standards. 

Several commenters encouraged CMS 

to provide flexibility and finalize broad 

categories of measures, especially when 

determining the value of drug therapies. 

Commenters noted that finalizing a 

broad definition with broad categories 

of measures will provide maximum 

flexibility between payers and 

manufacturers to specify more detailed 

medical and non-medical metrics, 

incentivize uptake of VBP arrangements, 

and avoid stifling innovation. 

Response: We appreciate the 

commenters’ suggestions for additional 

measures of drug value; however, we 

will not be amending the regulatory text 

to further define value, and we will not 

be requiring these measures as part of 

the final definition of VBP arrangement 

in order to ensure that the definition is 

sufficiently broad to permit flexibility 

by manufacturers and payers to 

negotiate the specific terms of each VBP 

arrangement. We encourage 

manufacturers and payers to consider 

these measures of value as 

recommended by the commenters, such 

as a comparison between the cost of the 

drug under the VBP versus other 

therapies, the impact of the VBP on total 

cost of care, such as a reduction in 

hospitalizations or other medical 

interventions, when evaluating a drug’s 

value and designing and negotiating the 

specific terms of a VBP arrangement. 

Comment: One commenter noted it is 

important that VBP arrangements 

facilitate access to high-value products 

by appropriately accounting for the 

actual clinical outcomes a specific 

product achieves. Appropriate measures 

include primary and secondary clinical 

trial endpoints, serious adverse effects 

avoided, total cost of care savings, 

episode-based reductions in spending 

below established benchmarks, and 

other clinically relevant measures that 

are substantially related to the 

underlying performance of the product 

and the overall improvement of the 

patient’s health. Requiring that VBP 

arrangements be linked to actual clinical 

outcomes will help facilitate the types 

of arrangements CMS hopes to promote 

and limit the opportunities for gaming 

the flexibilities introduced by this rule. 

Response: We appreciate the 

suggestion that actual clinically-relevant 

measures be used when measuring the 

performance of a drug product in a 

patient. We are not providing a specific 

definition of performance measure or 

giving specific examples of acceptable 

performance measures as part of the 

VBP definition and instead believe such 

measures may be addressed as part of 

the VBP agreement between the 

manufacturer and the payer. 

Comment: A few commenters 

encouraged CMS to require that 

measures of value or effectiveness must 

be person-centered and based on 

individual assessments of patient needs, 

excluding measures that are 

discriminatory against individuals with 

disabilities or older adults based upon 

quality of life or age. A few commenters 

requested that CMS specify that VBP 

arrangements may not lock-in patients 

or prevent them from determining the 

best treatment(s) in consultation with 

their providers. One commenter 

recommended that CMS require patient 

management and support services be 

included in VBP arrangements to 

promote medication compliance and 

adherence. Several commenters 

suggested that the proposed rule does 

not ensure coverage or access to 

prescription drugs is preserved, 

especially for Medicaid enrollees, 

individuals with disabilities, and 

patients with rare or complex genetic 

disease. A few commenters suggested 

that CMS require VBP arrangements to 

have substantive input from patients on 

their needs, priorities, and desired 

outcomes. A few commenters requested 

that CMS require a simple, transparent 

appeals process and patient safety 

monitoring protocols that they believe 

could serve to inform patients and 

providers of the effectiveness of a 

particular drug therapy. 

Response: With the exception of nondiscrimination obligations required 

under federal civil rights law, patient 

protections provided under 

manufacturer and payer arrangements 

are not a subject of this final rule. 

Therefore, while we agree with the 

commenters that measures adopted 

under VBP arrangements should not 

endanger certain patients, providers, or 

impede access to other available 

medications and treatments, or interfere 

with the practice of medicine generally, 

we are not imposing patient protection 

requirements on manufacturers or 

payers embarking on VBP arrangements 

as part of this final rule beyond 

previously articulated nondiscrimination obligations. 

f. Transparency and CMS Oversight 

Comment: Many commenters 

requested that CMS require certain 

transparency elements in the definition 

of VBP arrangements. Specifically, 

commenters recommend that CMS 

require manufacturers share details of 

VBP arrangements with states and 

payers, including cost-related and 

comparative effectiveness data and 

information available prior to FDA 

approval. In addition, they suggest that 

we report on measures included in VBP 

arrangements, including a description of 

the measure, justification for the 

measure selection, and the amount of 

the product’s cost that is tied to the 

measure; and publicly release outcomesbased data associated with VBP 

arrangements. 

Commenters also requested CMS 

issue guidance on the timing of 

negotiations for VBP arrangements with 

states, describe the process for 

maintaining confidentiality, identify 

information manufacturers are required 

to share with states and payers, 

establish a robust legal framework to 

allow all commenters to participate in 

VBP arrangements. They also requested 

that manufacturers be required to 

provide legal details in a timely manner 

to minimize gaps between VBP 

arrangements being implemented and a 

state beginning to participate in the 

arrangement. 

Commenters also suggested that CMS 

mandate that states be allowed to 

participate in the VBP arrangement, that 

specific details of contract structures of 

VBP arrangements remain confidential 

and disallow direct marketing or 

outreach by manufacturers to patients 

using manufacturer gathered data from 

VBP arrangements. 

Response: We believe the list of 

suggestions for CMS requirements on 

manufacturers, payers and states as they 

relate to transparency in VBP 


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arrangements are good suggestions and 

may be considered as part of the 

negotiation of a VBP arrangement 

between the manufacturer and payer. 

However, we are not establishing them 

as requirements on manufacturers and 

payers, including states, when 

participating in VBP arrangements in 

this final rule and we will not revise the 

definition of a VBP arrangement to 

specify such terms. 

As further arrangements may emerge 

as a result of this final rule, CMS may 

consider engaging states and other 

industry experts regarding best practices 

when negotiating VBP agreements. 

In order to clarify manufacturer 

obligations when reporting multiple 

best prices, we are revising the proposed 

regulation text at § 447.505(a) in this 

final rule to state that if a manufacturer 

offers a value based purchasing 

arrangement (as defined at § 447.502) 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 value based purchasing 

arrangement. However, states will not 

be required to participate in these VBP 

arrangements. In addition, if a state does 

not participate in the VBP arrangement, 

the best price that sets the rebate for that 

state will be the non-VBP arrangement 

best price point that must also be 

offered by the manufacturer and 

reported to CMS along with the multiple 

best price points reported by the 

manufacturer. 

Comment: Several commenters 

encouraged CMS to consider 

establishing oversight processes for VBP 

arrangements. Specifically, a few 

commenters suggested the Secretary of 

the Department of Health and Human 

Services (the Secretary) should establish 

a pre-certification process where 

outcomes-based VBP arrangements must 

be reviewed and approved before 

implementation and a process to 

validate performance measures used in 

VBP arrangements to ensure that 

measures are meaningful and rigorous. 

Another commenter requested that CMS 

establish a pre-certification process to 

ensure that manufacturers do not owe 

lesser Medicaid rebates under VBP 

arrangements. 

Response: We did not propose that we 

would provide specific oversight of the 

nature of VBP arrangements as part of 

this final rule. The federal oversight of 

VBP arrangements in the context of this 

rule would be related to the accuracy of 

manufacturer government price 

reporting and certification (for example, 

calculation and reporting of AMP and 

best price as described in § 447.510) and 

the manufacturer payment of required 

Medicaid drug rebates. Therefore, 

manufacturers should maintain records 

of their VBP arrangements as part of 

their recordkeeping requirements at 

§ 447.510(f). However, while we will not 

review or certify VBP arrangements 

offered under the multiple best price 

approach, we will continue to review 

and approve SPAs associated with CMSauthorized supplemental rebate 

agreement templates for state 

arrangements with manufacturers if a 

state chooses to use a VBP approach. 

We also note that as discussed later in 

this regulation, we will require state 

Medicaid programs under § 447.518 that 

have VBP arrangements under CMSapproved SRAs to report on a quarterly 

basis certain information regarding the 

program, such as the drugs covered, 

costs to administer the program, and 

savings generated. This will help 

provide feedback to states and CMS on 

the value of these programs to Medicaid, 

and the operational and policy issues 

that states may face with 

implementation. This requirement will 

go into effect on January 1, 2022. 

Otherwise, we will not be providing 

ongoing oversight or an approval 

process for VBP arrangements or the 

agreements between a manufacturer and 

payer. 

g. Patient and Provider Engagement 

Comment: Several commenters 

recommended that CMS require payers, 

including states, and manufacturers to 

engage patients and providers when 

determining outcomes-based measures 

and metrics for VBP arrangements. 

Several commenters emphasized the 

importance of including patientreported outcomes in VBP arrangements 

and that there was concern that a 

therapy successful in achieving outlined 

outcomes may still leave a patient with 

significant medical needs and medical 

costs. A few commenters recommended 

that CMS consider the National Health 

Council’s (NHC’s) patient-centered 

approach when establishing criteria for 

outcomes-based measures, including the 

six domains of patient partnership, 

transparency, representativeness, 

diversity, outcomes that patients care 

about, and patient-centered data sources 

and methods. A few commenters 

encouraged CMS to mandate substantive 

input from patients on factors like 

disease mitigation and management, 

impact on patient out-of-pocket (OOP) 

costs, ease of adherence, and improved 

aspects of quality of life. Another 

commenter noted patients, patient 

advocates and physicians without 

financial interest in a drug therapy must 

be included in the process of reviewing 

VBP arrangements. 

Response: We appreciate the 

comments summarized above and agree 

that patient and provider input in VBP 

arrangements are important, but we are 

not mandating patient or provider input 

with respect to VBP arrangement design 

or development in this final rule. We 

believe commercial payers and state 

Medicaid programs are in the best 

position to evaluate the benefits of a 

particular manufacturer’s value-based 

arrangement for their particular enrolled 

patient population and may ask 

manufacturers to engage with patient 

and provider groups as part of the VBP 

arrangement. We note that commercial 

payers generally have a mechanism to 

evaluate the costs and benefits of such 

programs through pharmacy and 

therapeutics committees, which often 

include health professional 

participation. Furthermore, state 

Medicaid DUR Boards that make 

coverage and criteria decisions for states 

may also assist states with the 

evaluation of evidence-based or 

outcomes-based measures associated 

with particular drug therapies available 

under VBP arrangements, and these 

Boards often include providers and 

patients or consumers. 

h. Burden of VBP Operations and Data 

Collection 

Comment: Many commenters 

expressed concern that there are 

administrative burdens, operational 

requirements and significant costs borne 

by providers, payers, and/or 

manufacturers to monitor patients and 

collect data to evaluate VBP 

arrangements. A few commenters 

identified patient portability, especially 

as a result of patients that may move in 

and out of the Medicaid program, as a 

significant challenge to operationalizing 

VBP arrangements as it may disrupt the 

ability to monitor and evaluate patient 

outcomes over longer periods of time. 

One commenter noted that 

manufacturers may further complicate 

data collection by requiring measures 

that labs might be incapable of testing 

and require involvement of third-party 

vendors and additional costs. Another 

commenter noted that manufacturers 

may increase data collection and 

monitoring burdens on providers and 

payers to gather data valuable for 

marketing, applications for FDA 

approval of supplemental indications, 

or post-marketing studies. 

Several commenters recommended 

that CMS provide additional guidance 

to address these operational barriers and 

the additional costs associated with the 

adoption of VBP arrangements, 

including developing internal state 

capacity and cross-sector, multi-payer 


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databases, and best practices for data 

collection and sharing. One commenter 

recommended that CMS partner with 

FDA and the Office of the National 

Coordinator for Health Information 

Technology (ONC) to provide guidance 

addressing these challenges. 

Response: We do not plan to issue 

guidance or best practices at this time as 

to how to operationalize, evaluate, or 

monitor VBP arrangements because each 

arrangement will have its own set of 

specific facts and circumstances 

associated with the VBP, such as the 

drug, the anticipated outcomes, and 

population included in the arrangement. 

In other words, a one-size fits all 

approach to operationalizing a VBP 

arrangement is not possible because of 

the many different arrangements on the 

marketplace. 

We also note that we are not requiring 

any entity to enter into VBP 

arrangements. Therefore, any entity that 

wants to voluntarily participate in a 

VBP arrangement (be it a provider, 

payer, or state) should evaluate the 

complexity of entering into a specific 

arrangement by noting the obligations 

required, such as increased data 

collection responsibilities, monitoring 

burden, patient-specific portability 

challenges, and patient monitoring 

associated with the outcomes or 

evidence-based evaluation under the 

VBP arrangement. Payers, including 

states, should take into consideration 

whether participating in these VBP 

arrangements are of value to their 

beneficiaries and consider the 

additional costs that they will likely 

incur for provider or other third party 

services as they evaluate the final price 

that they may pay for the drug being 

purchased under the VBP arrangement. 

Comment: A few commenters 

questioned whether VBP discounts 

(inclusive of administrative fees paid by 

manufacturers) are large enough to 

cover the additional operational costs 

(that is, staff, expertise, technical 

resources) to states to perform multiple 

and complex outcomes analyses. 

Response: Participants in VBP 

arrangements will need to determine if 

the price for the drug, as discounted by 

the manufacturer, through the VBP 

arrangement, will be significant enough 

to cover administrative and operational 

costs. Both state Medicaid programs and 

commercial payers should be mindful of 

these costs before entering into VBP 

arrangements with manufacturers. 

Comment: A few commenters 

recommended that CMS consider what 

state-level coordination is needed to 

track health outcomes for Medicaid 

beneficiaries involved in VBP 

arrangements. A few commenters noted 

that state Medicaid agencies may not 

have the capacity to perform data 

collection to validate performance of 

drug therapies under VBP arrangements 

and that Medicaid agencies will need to 

coordinate monitoring and data 

collection efforts across Medicaid 

managed care plans (MCPs), as well as 

states. Another commenter noted that 

states engaging in VBP arrangements 

should not impose additional data 

collection and reporting requirements 

on hospitals and providers as a 

condition of participation. 

Response: As noted earlier, we are not 

requiring state Medicaid agencies or 

their providers to enter into VBP 

arrangements as part of this final rule. 

Therefore, states will need to determine, 

when entering into VBP arrangements, if 

they have the capacity to operationalize 

and administer the various data 

collection efforts that may be required of 

a VBP arrangement. 

States should also consider the impact 

of a VBP arrangement’s data collection 

and reporting on Medicaid MCOs and 

Medicaid providers participating in 

these arrangements and whether or not 

these parties are interested in 

participating. Since the provider costs 

associated with a manufacturer’s VBP 

arrangement are not reimbursable under 

Medicaid (unless it is a Medicaid 

covered service paid for under the state 

plan), providers, manufacturers and 

states (including Medicaid MCOs) 

should evaluate the compensation 

offered (if available) for the provider 

tasks under the arrangement and 

whether or not such compensation is 

sufficient for the tasks to be performed. 

Comment: A few commenters 

requested that CMS offer reimbursement 

to providers when data collection is 

required. One commenter suggested that 

CMS should not allow VBP 

arrangements to place burden on 

providers to track and report on 

outcomes. One commenter noted that 

providers administering drug therapies 

will be better suited to evaluate patient 

outcomes and encouraged CMS to 

reimburse for monitoring and reporting 

costs. One commenter expressed 

concern that any savings associated 

with successful VBP arrangements are 

not shared with hospitals and providers. 

A few commenters recommended that 

CMS acknowledge the role of providers 

in patient monitoring and performance 

measure reporting in the final rule and 

noted that providers administering drug 

therapies will be better suited to 

evaluate patient outcomes and 

encouraged CMS to reimburse for 

monitoring and reporting costs. One 

commenter requested CMS to clarify if 

savings associated with VBP 

arrangements will be shared with 

providers through higher 

reimbursement rates furnished to 

Medicaid beneficiaries. 

Response: We understand that 

depending upon the VBP arrangement, 

providers may have a significant role in 

providing or administering the drug, 

evaluating of patient outcomes, and 

monitoring patient and other clinical 

details associated with the VBP 

arrangement. Each VBP arrangement 

will have its own set of criteria that are 

needed to evaluate outcomes; therefore, 

it should be up to the parties 

participating in the VBP arrangement to 

negotiate terms regarding the source of 

payment or reimbursement relating to 

the performance of these activities. We 

did not propose and is not finalizing a 

new payment authority as part of this 

rule for Medicaid providers to perform 

these activities. 

i. Patient Considerations 

Comment: A few commenters 

expressed concern that VBP 

arrangements may compromise patient 

safety based on their belief that 

manufacturers might be encouraged to 

bring a drug to market with potential 

outcomes, not proven ones. The 

commenters also noted that if a drug 

proves to be more effective than initially 

demonstrated, the manufacturer should 

have the opportunity to demonstrate the 

increased benefit and re-apply for 

payment that reflects the new outcome 

effectiveness. 

Response: We disagree with the 

commenter that this rule, which gives 

manufacturers and payers flexibility to 

enter into VBP arrangements will allow 

manufacturers to market suboptimal 

drugs or compromise patient safety. The 

safety and effectiveness of a drug is not 

the subject of this final rule. And we 

further add that the final definition of 

VBP arrangement at § 447.502 is limited 

to covered outpatient drugs as defined 

at section 1927(k)(2) of the Act which 

with very limited exceptions have 

already been approved by FDA. 

Comment: A few commenters 

requested that CMS prohibit 

manufacturers from using data for direct 

marketing to patients or clinicians, 

applications for FDA approval of 

supplemental indications, or postmarketing studies. 

Response: The proposed rule did not 

address the use of data by 

manufacturers as part of their VBP 

arrangement, therefore it is not a topic 

of this final rule. We believe any data 

use as a result of a VBP arrangement 

should be negotiated between the 

parties of the VBP agreement. 


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We also remind states that the use of 

a VBP arrangement in the Medicaid 

program does not modify the Section 

1927 requirements regarding state 

coverage of the covered outpatient drugs 

of those manufacturers that have a 

rebate agreement in place with the 

Secretary of HHS. Moreover, we 

reiterate that CMS will not be 

overseeing the specific VBP 

arrangements or the specific pricing 

agreements entered into between states 

and manufacturers with respect to 

multiple best prices. Our role will be 

limited to receiving best price and other 

price information that manufacturers are 

required to send us under law and 

regulation, as well as making states 

aware that such multiple best prices 

have been reported to us for a specific 

drug. 

Comment: A few commenters 

requested that CMS reject VBP 

arrangements and other alternative 

payment arrangements that unduly limit 

Medicaid enrollee access to medically 

necessary outpatient prescription drugs. 

Response: This rule, and the 

development of a various VBP 

approaches under this regulation, 

including the multiple best price 

approach, does not change state 

Medicaid program drug coverage 

requirements under section 1927 of the 

Act, and therefore, we do not believe 

there will be an access issue to 

medically-necessary covered outpatient 

drugs as a result of this final rule or VBP 

arrangements offered by manufacturers. 

States are still required to cover drugs 

that satisfy the definition of a covered 

outpatient drug subject to a 

manufacturer rebate agreement, whether 

that drug is subject to a VBP 

arrangement or not. If the drug is subject 

to a VBP arrangement and the state 

decides to participate in the 

manufacturer’s VBP arrangement, the 

state would have to cover the drug 

under the VBP arrangement similar to 

how it would cover it if it chose not to 

participate in the VBP. The difference is 

the state would be able to collect 

additional rebates based upon the VBP 

arrangement design and presumably, the 

multiple best prices reported by the 

manufacturer under the VBP 

arrangement. Moreover, this rule does 

not establish any CMS review and 

approval process for VBP arrangements. 

j. AMP/Best Price Reporting and MDRP 

Comment: A few commenters 

expressed concern that manufacturers 

may be able to set artificially low initial 

prices to delay when they have to pay 

the full rebates they owe, and requested 

CMS clarify how manufacturers will 

report their initial prices. 

Response: Manufacturers that offer 

VBP arrangements (as defined at 

§ 447.502) would report AMP and best 

price to CMS as they currently do each 

quarter. They would report a best price 

that was not tied to a VBP arrangement, 

and then report the multiple best prices 

for any VBP arrangements that they are 

willing to offer to the states. We will 

provide additional guidance to 

manufacturers on how such reporting 

would be made, as well how we would 

report these non-VBP and VBP prices to 

states so they can evaluate their 

participation. 

The establishment of drug launch 

prices is outside the scope of this rule. 

However, to the extent that 

manufacturers increase prices on their 

products faster than the CPI–U, 

manufacturers would pay additional 

rebates (that is, inflation penalties) as 

required under section 1927(c) of the 

Act. 

Comment: Several commenters 

recommended that manufacturers be 

permitted to report AMP as the full 

price of the drug at the time the drug is 

administered, even if installment 

payments would extend to subsequent 

quarters. A few commenters 

recommended CMS clarify that any 

installment that is forgiven under a VBP 

arrangement will be treated as a lagged 

price concession for purposes of the 

AMP smoothing methodology. 

Response: Manufacturers must 

include the full price of the drug in the 

quarter in which the drug is sold in the 

determination of AMP in accordance 

with the definition of AMP at section 

1927(k)(1) of the Act regardless of the 

payment arrangements negotiated with 

payers. Both the statutory and 

regulatory definition of AMP at 

§ 447.504(a) require that AMP reflect 

‘‘the average price paid’’ to the 

manufacturer for the drug in the United 

States by wholesalers for drugs 

distributed to retail community 

pharmacies and retail community 

pharmacies that purchase drugs directly 

from the manufacturer. Installment 

payments do not represent the price of 

the drug, but rather a partial payment of 

the drug’s price. 

We also believe it is appropriate that 

an installment payment not made 

because of a VBP arrangement outcome 

which would result in a significant 

discount, be treated as a lagged price 

concession (as defined at § 447.502) for 

purposes of the determination of AMP 

in accordance with § 447.504(f)(3) and 

best price in accordance with 

§ 447.505(d)(3). 

Comment: One commenter 

recommended that until a manufacturer 

has VBP arrangements in place that 

cover 50 percent of the treated diseasestate population, Medicaid should 

continue to exclude VBP arrangements 

from the manufacturer’s calculation of 

best price. Another commenter 

recommended CMS implement 

standardized process for manufacturers 

to correct best price data generated 

under a VBP arrangement. 

Response: The proposed regulation 

did not propose that VBP arrangements 

be excluded from the determination of 

best price. Moreover, best price, as 

defined at section 1927(c)(1)(C) of the 

Act, does not permit the exclusion of 

prices available under VBP 

arrangements. Instead, we expanded 

§ 447.505(a) to revise best price to state 

that a lowest price available from a 

manufacturer may include varying price 

points for a single dosage form and 

strength as a result of a VBP 

arrangement defined at § 447.502. We 

further discuss this policy in the 

multiple best prices section in the 

preamble below. 

Comment: A few commenters 

recommended that CMS require 

manufacturers to provide separate 

payments for data collection and 

monitoring services in VBP 

arrangements and to expressly 

characterize them in the contract as 

either discounts or bona fide service 

fees paid separately from the VBP 

contract. This separation will provide 

clarity for all parties for legal and 

regulatory price reporting obligations 

(for example, AMP and best price). 

Other commenters noted that 

manufacturer payment to third parties 

to track patient outcomes and fees 

associated with the administrative 

services should be excluded from best 

price and AMP calculations and 

reporting and requested CMS to provide 

guidance on the appropriate fair market 

value reimbursement for pharmacy 

services provided under VBP 

arrangements. 

Response: We made no proposals 

about how manufacturers or other 

parties pay for data collection and 

monitoring associated with VBP 

arrangements in this rule. We believe 

payments for data collection and 

monitoring services as part of a VBP 

arrangement should be addressed 

during negotiations with the parties 

involved in the VBP arrangement. 

Furthermore, if a manufacturer pays a 

fee to any entity for data collection, 

administration or evaluation of a patient 

in a VBP arrangement, the manufacturer 

should evaluate whether or not that fee 

represents a fair market value for the 

service in accordance with the 

definition of bona fide service fee at 

§ 447.502, as such fees shall be excluded 


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from the determination of AMP and best 

price (see §§ 447.504(c)(14) and (e)(5) 

and 447.505(c)(16)). Further discussion 

regarding the definition of bona fide 

service fees and fair market value is 

provided in the preamble (81 FR 5176 

through 5181) to the COD final rule. 

Comment: One commenter requested 

that CMS clarify how a manufacturer 

should structure rebates under VBP 

arrangements to account for a delay in 

data for outcome measures. 

Response: We understand that there 

may be a delay in the reporting to a 

manufacturer of patient outcomes data 

under a VBP arrangement. We expect 

that manufacturers, under a VBP 

arrangement that will result in multiple 

best prices, will report to us a set of best 

prices that are associated with outcomes 

or evidence based measures which will 

be used for the Federal Medicaid drug 

rebate calculation. Based on the 

agreement the state (or other payer) has 

with the manufacturer relative to the 

VBP arrangement, states will report 

outcomes data to the manufacturers 

when they are available, and states will 

receive Federal Medicaid rebates based 

on the outcome measure observed in the 

quarter it was measured. This means 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, and the initial rebate 

would need to be supplemented to 

account for one of the multiple best 

prices as a result of the outcome of the 

VBP arrangement. In other words, a 

prior period adjustment to a Medicaid 

Federal rebate that has already been 

paid to the state may be necessary. 

k. Other Payment Models (Warranty, 

Pay-Over-Time, Subscription, 

Indication-Based Pricing) 

Comment: Several commenters 

encouraged CMS to provide that 

additional innovative arrangements that 

could qualify under the definition of 

VBP arrangements such as paymentover-time, license or subscription 

arrangements, indication-based pricing, 

combination pricing, warranty type 

models, subscription models and 

financial risk-based models. One 

commenter suggested that CMS refine 

the definition of VBP arrangements to 

allow payment-over-time arrangements 

that do not rely on evidence- or 

outcomes-based measures and 

recommended that the definition be 

revised to read: ‘‘(1) an arrangement 

containing measures (which can be 

outcome-based, evidence-based, or use 

other standards) that link the cost of a 

drug product to a specific outcome in 

patient or population, whether measures 

in health outcome, cost savings, or any 

metric agreed to by the parties, or (2) 

payment over time arrangements not 

contingent on specific health 

outcomes.’’ 

Commenters also requested that 

‘‘warranty-type’’ insurance models (this 

model obligates a premium payment by 

the manufacturer to a health plan to pay 

for a patient’s future healthcare costs if 

the therapy fails) be outside of the 

proposed definition of VBP and that the 

revisions adding VBP arrangements to 

the proposed bundled sale definition 

and multiple best price calculations 

would not apply to such warranty 

models. 

Some commenters suggested that 

some subscription models may not meet 

the definition of VBP arrangements; 

however, those (subscription) models 

that link to evidence-based or patient 

outcomes should be included in the 

definition proposed by CMS. 

Response: We recognize that there 

may be a variety of payment models that 

industry may adopt that may, or may 

not satisfy the definition of a VBP 

arrangement. We do not want to 

inadvertently narrow the definition of 

VBP arrangements by identifying 

specific models or structures and 

believe the definition of VBP 

arrangement in this final rule is 

sufficiently broad to potentially capture 

the various arrangements noted by the 

commenters when it would be 

appropriate. 

We note that not all pay-over-time 

arrangements will meet the definition of 

a VBP arrangement at § 447.502. For 

example, while there may be some payover-time arrangements that allow 

payers to pay in increments based upon 

evidence-based or outcomes-based 

measures, we do not agree that every 

pay-over-time or subscription model 

should be considered in the definition 

of VBP arrangement. Some pay-overtime measures are simply payment 

schedules negotiated between the 

manufacturer and payer and do not have 

any linkage to the value of the drug to 

the patient or selected population. 

One of our main objectives is to 

ensure that any VBP arrangement must 

include evidence-based measures that 

substantially link the cost of a covered 

outpatient drug to existing evidence of 

effectiveness and potential value for 

specific uses of that product; 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. If one of these 

models noted above satisfies the 

definition of a VBP arrangement, then it 

may appropriately avail itself of 

applicable regulatory flexibilities. 

However, there are questions 

regarding whether the premiums paid 

by the manufacturer to a third party can 

be excluded from, or included in, best 

price when a manufacturer adopts a 

warranty-type models. Section 

1927(c)(1)(C) of the Act defines best 

price, in part, to mean with respect to 

a single source drug or innovator 

multiple source drug of a manufacturer, 

the lowest price available from the 

manufacturer during the rebate period 

to any wholesaler, retailer, provider, 

health maintenance organization, 

nonprofit entity or governmental entity 

within the United States, with certain 

exclusion applying. The statutory 

definition of best price is implemented 

in regulation at § 447.505 and provides 

that a drug’s best price be net of certain 

transactions including incentives (see 

§ 447.505(d)(1)). 

The premium paid by the 

manufacturer to a third party to warrant 

a drug and provide benefits to payers 

and patients when certain clinical or 

performance measures are not achieved 

serves as an incentive to payers, 

providers, and patients to purchase the 

drug. Therefore, the premium paid by a 

manufacturer reduces the drug’s price, 

and must be included in ‘‘best price.’’ 

However, the benefits paid by the third 

party in the event the drug did not meet 

certain clinical or performance 

measures are exempt from ‘‘best price’’ 

because payments made from the third 

party to the payer do not represent a 

price available from the manufacturer to 

any best price eligible entity as provided 

in § 447.505(a) and does not represent a 

manufacturer sale to an AMP eligible 

entity consistent with § 447.504(b) or 

(d). 

Therefore, under this warranty model, 

a manufacturer would pay both Section 

1927 rebates for the drug, as well as pay 

for a premium for a warranty policy, the 

value of which they would have to be 

included in the calculation of their best 

price, regardless of whether the 

manufacturer uses a VBP arrangement 

that results in multiple best prices. 

Comment: One commenter 

encouraged CMS to explore carving VBP 

arrangements out of government price 

reporting metrics, while creating a 

mechanism for direct payment of 

discounts to states could encourage 

broader adoption of VBP arrangements. 

Response: This comment is outside 

the scope of the rule. 

Comment: A commenter requested 

clarification from CMS regarding twosided risk VBP arrangements and how 

they would operate within the context 


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of the proposed Medicaid best price 

accommodations. 

Response: It is not clear from the 

comment what is meant by two-sided 

risk VBP arrangements. However, we 

believe that any adjustments to the 

prices available from the manufacturer, 

including adjustments made by the 

payer or manufacturer under a VBP 

arrangement, that adjust the prices 

available from the manufacturer must be 

included in the determination of best 

price as provided at section 

1927(c)(1)(C)(ii)(I) of the Act and 

§ 447.505(d)(3). 

l. Other Concerns With VBP 

Arrangements 

Comment: Many commenters 

recommended that CMS work with HHS 

OIG and Office of Civil Rights (OCR) to 

provide guidance to address other 

regulatory obstacles to uptake and 

operationalization of VBP arrangements, 

including the Anti-kickback Statute, the 

Physician Self-Referral Law (Stark Law), 

privacy laws (such as HIPAA), and civil 

monetary penalty (CMP) rules relating 

to beneficiary inducements. A few 

commenters suggested that CMS 

collaborate with HHS OIG to issue 

guidance on relevant safe harbors to 

accommodate the collection and sharing 

of patient outcomes data to evaluate 

VBP arrangements. A few commenters 

requested that CMS clarify how safe 

harbors can accommodate for, among 

other issues, the collection and sharing 

of data to adjudicate a contract and VBP 

arrangements that tie payment to 

outcome measures that are meaningful 

to manufacturers, payers, and patients 

but that are not included in a drug’s 

FDA-approved label. 

Response: We appreciate the 

suggestions and will consider whether 

additional guidance may be needed at a 

later date. Furthermore, commenters 

concerns regarding safe harbors under 

HHS OIG should be addressed directly 

with the OIG. 

Comment: A few commenters 

requested CMS to clarify whether the 

new flexibility for state Medicaid 

programs to enter into VBP 

arrangements would include claims 

paid under, or could be applied to, 

Medicaid MCOs. One commenter 

encouraged CMS to require Medicaid 

MCOs to have a VBP agreement signed 

in the quarter preceding implementation 

based on their belief that the 

requirement would address post facto 

adverse selection. 

Response: Medicaid MCOs may enter 

into their own VBP arrangements with 

manufacturers including the VBP 

arrangement offered by the 

manufacturer on the commercial 

market. However, the prices negotiated 

under those VBP arrangements would 

not be exempt from best price given that 

the prices are not negotiated pursuant to 

a CMS- authorized supplemental rebate 

agreement under the exclusion at 

§ 447.505(c)(7). 

Comment: A commenter suggested 

that CMS should engage in a Request for 

Information (RFI) process to gather more 

stakeholder feedback to develop more 

detailed proposals before finalizing the 

proposed rule definition of a VBP 

arrangement. One commenter noted that 

CMS’ request for public comment on 

additional measures to reflect value 

from a drug therapy is indicative of a 

need for a RFI process prior to the 

release of formal notice and comment 

rulemaking. 

Response: We do not believe feedback 

via a RFI is necessary before finalizing 

this rule as there are numerous 

manufacturers and payers already 

involved in VBP arrangements and the 

goal of this rule was to enhance 

flexibility around Medicaid drug rebate 

pricing rules for manufacturers and 

payers as they enter into these 

arrangements. We appreciated the 

suggestions that commenters gave 

regarding the measures to determine a 

drug’s value, which we hope will 

generate ideas and considerations as 

manufacturers and payers continue 

participating in VBP arrangements. CMS 

may consider issuing best practices in 

Medicaid regarding VBP arrangements 

in the future based upon the 

experiences realized by states, payers, 

and manufacturers. 

Comment: A commenter recommends 

that CMS work with its fellow agencies 

to develop and implement strategies and 

programs to improve the availability, 

quality, and access to real-world data 

(RWD) for research and other 

population health purposes and CMS 

should establish privacy-related policy 

principles and recommendations to 

support the use of RWD and real-world 

evidence to include patient-generated 

data for clinical research, regulatory 

evaluation, and VBP decision-making. 

The commenter further noted that CMS 

should collaborate with FDA on ways to 

generate shared evidence in support of 

their (CMS) decisions. 

Response: While the availability of 

data to measure and evaluate drug 

therapies is an essential part of VBP 

arrangements, improving upon the 

availability, quality and access of real 

world data for research and other 

purposes, is outside the scope of this 

final rule. 

Comment: One commenter 

recommended CMS consider creating a 

new type of Healthcare Common 

Procedure Coding System (HCPCS) 

code, potentially a modifier, associated 

with a gene therapy’s HCPCS Level II 

code, preferably issued at the time of 

FDA approval, which could be used to 

report whether or not a health outcome 

was achieved to facilitate payment and 

financial reconciliation of a value-based 

contract. 

Response: The creation of new types 

of HCPCS codes associated with this 

regulation is outside the scope of this 

final rule. 

Comment: One commenter 

recommended that CMS require state 

Medicaid agencies that enter into VBP 

arrangements to provide the 

manufacturers with audit rights to any 

data collected for purposes of tracking 

performance. The commenter noted that 

access to the data is important to 

adjudicate the rebates associated with 

VBP arrangements and to facilitate 

lessons learned for both parties. 

Response: This final rule does not 

require state Medicaid agencies provide 

manufacturers with the data collected 

for purposes of tracking a drug’s 

performance. This final rule focuses on 

providing manufacturers and payers 

additional regulatory flexibility to enter 

into VBP arrangements. We believe if 

manufacturers desire to seek audit rights 

as part of the VBP arrangement, 

manufacturers may consider negotiating 

these terms as part of the arrangement 

with the state. 

Comment: One commenter noted the 

proposed rule facilitates uptake of 

individual-level VBP arrangements for 

one-time or curative treatments, rather 

than arrangements requiring populationbased approaches. The commenter also 

noted that without further clarification, 

uptake of population-based VBP 

arrangements for chronic conditions 

would be limited as a result of the 

administrative burden born by payers 

and manufacturers to calculate the value 

of a drug at the individual-level. 

Response: We do not agree that the 

proposed rule facilitates only individual 

level VBP arrangements for one-time or 

curative treatments instead of 

population based approaches because 

the definition of VBP arrangement does 

not make such limitations. We also 

believe that by adopting a broad 

definition of VBP arrangement, 

manufacturers will have the flexibility 

to develop VBP arrangements specific to 

either individual or population-based 

approaches. 

Comment: A few commenters 

expressed concern that payers may deny 

coverage of FDA-approved therapies as 

a result of not meeting expected 

outcomes for VBP arrangements, 

especially for gene therapies and 


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contraception. Another commenter 

requested CMS clarify that the lack of a 

VBP arrangement does not release the 

state from the drug coverage obligations 

of section 1927 of the Act. 

Response: This final rule does not 

affect Medicaid coverage of covered 

outpatient drugs as defined at section 

1927(k)(2) of the Act. States are required 

to cover all covered outpatient drugs of 

manufacturers that participate in the 

MDRP, whether the state enters into a 

VBP arrangement or not. 

Comment: A few commenters 

recommended that CMS consider 

waiving cost-sharing requirements for 

beneficiaries participating in VBP 

arrangements or develop other 

approaches for sharing savings with 

beneficiaries. 

Response: This comment is outside 

the scope of this final rule. 

After considering the comments 

received, we believe the definition of 

VBP arrangement should be broad 

enough so that manufacturers and 

payers, including states, have the 

flexibility to structure a VBP 

arrangement specific to the drug therapy 

being offered. Therefore, we are 

maintaining a broad definition to ensure 

such arrangements are recognized for 

purposes of determining and reporting 

best price and AMP; however, we agree 

with commenters that the evidence or 

outcomes-based measures used in a VBP 

arrangement should be evaluated in a 

select population and are therefore 

adding the term ‘‘select’’ before 

populations in the definition to clarify 

that VBP arrangements are specific to 

select population groups using the drug 

therapy, such as a gene therapy specific 

to a patient with a particular type of 

cancer. We are also adding the terms 

‘‘and/or’’ between the two measures in 

the definition to further clarify that 

either evidence-based or outcomesbased measures could be used in a VBP 

arrangement. Furthermore, we agreed 

with commenters concern that the 

parenthetical ‘‘that is, outcomes relative 

to costs’’ is confusing given outcomesbased measures are already part of the 

definition of VBP arrangement. 

Therefore, we are removing it to reduce 

redundancy. Also, in response to 

commenters concerns that the drug 

covered by the VBP arrangement has 

demonstrated effectiveness, we are 

clarifying that VBP arrangements apply 

to covered outpatient drugs; that is, 

products that satisfy the definition of a 

covered outpatient drug, as defined at 

section 1927(k)(2) of the Act. We are 

finalizing the definition of a VBP 

arrangement to mean an arrangement or 

agreement intended to align pricing 

and/or payments to an observed or 

expected therapeutic or clinical value in 

a select population and includes, but is 

not limited to: 

• Evidence-based measures, which 

substantially link the cost of a COD to 

existing evidence of effectiveness and 

potential value for specific uses of that 

product; and/or, 

• Outcomes-based measures, which 

substantially link payment for the COD 

to that of the drug’s actual performance 

in patient or a population, or a 

reduction in other medical expenses. 

3. Inclusion of VBP as a Performance 

Requirement Under a ‘‘Bundled Sale’’ 

As stated in the June 2020 proposed 

rule, one of the issues manufacturers 

contend with in determining best price 

with the advent of VBP arrangements is 

that a manufacturer’s best price can be 

reset based upon the outcome of a drug 

treatment for one patient or one unit of 

the drug because of the VBP 

arrangement. When this occurs, the 

rebate due for that single use of the drug 

during a quarter that results in a 

negative outcome will reset the best 

price to a significantly lower amount, 

sometimes zero, prompting a 

significantly higher rebate (sometimes 

100 percent of the drug’s AMP). We 

have received stakeholder comments 

and inquiries regarding how rebates or 

discounts as part of a VBP arrangement 

could be considered in a bundled sale 

when determining best price. Some 

manufacturers have made reasonable 

assumptions that such discounts, as a 

result of a VBP, should be considered 

part of a bundled sale as defined at 

§ 447.502. 

In the COD final rule, we defined 

bundled sale at § 447.502 as any 

arrangement regardless of physical 

packaging under which the rebate, 

discount, or other price concession is 

conditioned upon the purchase of the 

same drug, drugs of different types (that 

is, at the nine-digit NDC level) or 

another product or some other 

performance requirement (for example, 

the achievement of market share, 

inclusion or tier placement on a 

formulary), or where the resulting 

discounts or other price concessions are 

greater than those which would have 

been available had the bundled drugs 

been purchased separately or outside 

the bundled arrangement. Specifically, 

the discounts in a bundled sale, 

including those discounts resulting from 

a contingent arrangement, are allocated 

proportionally to the total dollar value 

of the units of all drugs or products sold 

under the bundled arrangement. Also, 

for bundled sales where multiple drugs 

are discounted, the current definition 

indicates that the aggregate value of all 

the discounts in the bundled 

arrangement must be proportionally 

allocated across all the drugs or 

products in the bundle. (See § 447.502; 

81 FR at 5182.) We noted that we 

understand that based on the bundled 

sale definition, which provides that the 

rebate, discount or other price 

concession is conditioned upon the 

purchase of the same drug, drugs of 

different types, or another product or 

some other performance requirement, 

some manufacturers have made 

reasonable assumptions to take into 

account the discounts from a VBP 

arrangement that has a performance 

requirement when a measure (such as a 

performance-based measure) is not met. 

When manufacturers recognize the VBP 

arrangement as a bundled sale, the 

manufacturer, for example, may assume 

that the discount that resulted from a 

performance requirement of a single 

unit is distributed proportionally to the 

total dollar value of the units of all the 

drugs sold in the bundled arrangement. 

This smooths out the discount over all 

the units sold under the arrangement in 

the rebate period and does not reset the 

manufacturer’s best price based upon 

the ultimate price of one unit of a drug. 

For example, a manufacturer could 

structure a VBP arrangement such that 

to qualify for a patient outcome rebate, 

the bundled sale VBP arrangement 

requires the sale of 1000 units of the 

same drug at $200 per unit, and if one 

patient fails to achieve an outcomesbased performance measure the 

manufacturer agrees to a $100 price 

concession on that one unit. In this 

example, because all of the drugs in the 

bundle were subject to the performance 

requirement, the manufacturer’s scheme 

qualified as a bundled sale VBP 

arrangement, and thus, the 

manufacturer’s rebate of $100 on that 

one unit would be allocated across all 

units in that bundled sale as follows: 

1000 units × $200 = $200,000¥$100 

price concession = ($199,900/1000 

units) = $199.90. 

Best price could be set at $199.90 if 

that $100 rebate available in a qualifying 

bundled sale resulted in the lowest 

price available from the manufacturer, 

and not at $100 ($200/unit¥$100). 

We agree with the applicability of the 

bundled sale definition in this context 

because it will permit manufacturers to 

have a best price that is not based upon 

the failure of one patient taking the 

drug. Therefore, to facilitate the 

appropriate application of a bundled 

sale offered in the context of a VBP 

arrangement to the best price 

determination, we proposed to revise 

the definition of bundled sale at 

§ 447.502 to add paragraph (3) that 


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states VBP arrangements may qualify as 

a bundled sale, if the arrangement 

contains a performance requirement 

such as an outcome(s) measurement 

metric. We noted that we expect 

manufacturers, consistent with the 

manufacturer recording keeping 

requirements at § 447.510(f), to maintain 

documentation of the VBP arrangement, 

including documentation of how the 

programs meets the new definition of 

VBP arrangement, to support their 

calculation of AMP and best price. 

We received the following comments 

on the definition of bundled sale in 

§ 447.502. 

Comment: Many commenters 

expressed support for CMS’ proposed 

changes to the bundled sale definition 

which would permit manufacturers to 

allocate discounts or price concessions 

as a result of a VBP arrangement across 

a bundled sale. Several commenters 

expressed support for the proposed 

revision to the definition of bundled 

sale to include the ‘‘performance 

requirement’’ and that the bundled sale 

authority requires a VBP with a 

performance requirement, like an 

outcomes metric, but noted that the 

performance requirement does not need 

to be an outcomes metric as set forth in 

the VBP arrangement definition. 

Another commenter disagreed with the 

inclusion of the performance 

requirement and requested that CMS 

consider changing the language ‘‘if the 

arrangement contains a performance 

requirement such as an outcome(s) 

measurement metric’’ to explicitly state 

‘‘a value-based purchasing (VBP) 

arrangement may be treated as a 

bundled sale.’’ 

Response: We appreciate the support 

and suggestions related to the proposed 

revisions to the bundled sale definition 

at § 447.502. We agree with the 

commenters, and are revising the 

proposed definition to remove ‘‘if the 

arrangement contains a performance 

requirement such as an outcomes 

measures metric’’ because this phrase is 

redundant to the definition of VBP 

arrangement defined at § 447.502 which 

already requires VBP arrangements 

include outcomes based measures. We 

also note that the measures listed in the 

preamble to the proposed rule (85 FR 

37292) are examples for manufacturers 

to consider and we do not intend to 

limit VBP arrangements to only those 

examples. 

Comment: A few commenters 

requested CMS to clarify in the 

regulations that the ‘‘VBP arrangement’’ 

referenced in the bundled sale proposed 

regulatory text is or is not associated 

with the proposed definition of VBP 

arrangement to be codified at § 447.502. 

Response: The definition of VBP 

arrangement, as finalized at § 447.502 by 

this final rule, will apply to the bundled 

sale definition. 

Comment: Several commenters did 

not support the proposed changes to the 

definition of bundled sale. One 

commenter noted this change would 

make the best price requirement ‘‘highly 

vulnerable to manufacturer gaming and 

inaccurate reporting that could 

substantially reduce or delay drug 

rebate payments.’’ Another commenter 

opined that the proposed changes 

would ‘‘water down existing discounts, 

raise best price and lower rebate 

amounts.’’ One commenter expressed 

the belief that the proposed changes 

would permit manufacturers to offer a 

low price to commercial purchasers and 

payers that would not be available to 

Medicaid. 

Response: It is not completely clear 

what the commenter means by 

‘‘gaming’’; however, we do not agree 

that this clarification to the bundled sale 

definition makes it highly vulnerable to 

manufacturer gaming in the context of 

best price or AMP that would reduce 

Medicaid drug rebates. Some 

manufacturers have already been 

allocating discounts in a bundled 

arrangement as a result of a performance 

requirement under a VBP arrangement 

using reasonable assumptions and have 

shared those approaches with CMS. 

While we have not opined on those 

manufacturer-specific approaches, we 

have not detected any significant impact 

on these manufacturers’ best price or 

AMP, or decreases in Medicaid drug 

rebates. Manufacturers continue to be 

potentially subject to penalties, 

including CMPs, for failure to follow 

pricing and product reporting 

requirements. 

The clarification made to the 

definition of bundled sale was necessary 

to specifically address situations when 

best price is reset based upon the 

outcome of a drug treatment for one 

patient or one unit of the drug because 

of the VBP arrangement. As stated in the 

preamble to the proposed rule, a single 

use of the drug in a patient can result 

in a negative outcome which will reset 

the best price to a significantly lower 

amount, sometimes zero, prompting a 

significantly higher Medicaid drug 

rebate for the manufacturer (sometimes 

100 percent of AMP) (85 FR 37292). We 

believe the impact of these significantlyhigher Medicaid drug rebate deters 

manufacturers from offering VBP 

arrangements on the commercial 

market, as well as Medicaid. 

Comment: A few commenters stated 

that manufacturers should not be 

permitted to mix prices under a VBP 

arrangement with those under a nonVBP arrangement. Another commenter 

recommended the bundled calculation 

occur at the individual purchaser and 

individual VBP contract level and that 

best price for an individual purchaser 

should equal the average price paid per 

unit after including (or stacking) all 

discounts that a purchaser received, 

whether the discounts were within or 

outside of a VBP arrangement. One 

commenter requested from CMS a 

clearer definition of ‘‘proportional 

allocation’’ of discounts within a 

bundled sale arrangement with regards 

to VBP arrangements. Another 

commenter expressed concern that the 

proposed rule does not adequately 

address how stacked discounts would 

be handled in a bundled arrangement, 

allowing manufacturers to use evidencebased VBP to spread stacked discounts 

across all purchases, ultimately, in the 

commenter’s opinion, reducing 

Medicaid rebates. 

Response: The definition of bundled 

sale at § 447.502(1) indicates that 

discounts in the bundled sale, including 

those discounts resulting from a 

contingent arrangement, are allocated 

proportionally to the total dollar value 

of the units of all drugs or products sold 

under the bundled arrangement. The 

policy that is being finalized in this rule 

is that VBP arrangements may qualify as 

a bundled sale. Therefore, if the 

manufacturer determines that its VBP 

arrangement qualifies as a bundled sale, 

the manufacturer allocates the VBP 

discounts in the VBP arrangement so 

that it is proportional to the total dollar 

value units of all drugs or products sold 

under the bundled arrangement to the 

best price (or AMP) eligible entity. Any 

discounts provided for those units sold 

to the best price (or AMP) eligible entity 

outside of the VBP arrangement would 

not be part of the allocation. Moreover 

any non-VBP discounts provided to the 

best price (or AMP) eligible entities 

should be considered when determining 

the actual price realized by the entity 

and would not be part of the bundled 

sale allocation. That is, the single actual 

price realized by the entity for the 

quarter when using a bundled sales 

approach for a drug would have to be 

considered by the manufacturer along 

with any non VBP prices for the same 

drug. 

Comment: A commenter suggested 

that aggregation of sales and discounts 

across purchasers under a VBP 

arrangement to arrive at a bundled sales 

best price should only be allowed for 

very small purchasers (such as when 

that the number of patients expected to 

take the drug is extremely low). Another 

commenter requested that CMS change 


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the rule to require manufacturers to 

include all VBP rebates in the 

calculation of a single best price using 

the bundled sale methodology. 

Response: We appreciate the 

comments; however, we do not agree 

that the bundled sales approach only 

applies in certain situations (for 

example, drug usage in a small number 

of individuals) or that all discounts of 

a VBP arrangement could be used in the 

calculation of a single best price using 

the bundled sale methodology. 

Manufacturers may determine that they 

want to work with one or more different 

best price eligible entities on a VBP 

program using a bundled sales 

approach, whether a small number or 

large number of patients are involved 

for each best price eligible entity. 

Manufacturers would have a distinct 

price for each entity, taking into account 

price concessions or discounts inside 

and outside of the bundled sale 

arrangement available to the entity, and 

compare the prices amongst all eligible 

entities in a quarter to determine the 

product’s lowest price available. That 

lowest price available amongst the best 

price eligible entities would presumably 

be the best price. 

We do not believe that the statute 

supports the inclusion of all VBP prices 

offered by a manufacturer into the 

calculation of a single best price under 

a bundled sales methodology, as the 

determination of a best price is based on 

a lowest price available to a specific best 

price eligible entity, not a price that is 

an aggregation of sales/discounts/ 

rebates across multiple entities as 

suggested by the commenter. 

Comment: A few commenters 

expressed concern that the bundled 

sales approach may not be a workable 

approach to determining best price 

because VBP arrangements involving 

very small patient populations, such as 

gene therapy or drug therapies that treat 

rare and orphan diseases, and may not 

be able to take advantage of the 

smoothing effect of the bundled sale 

methodology. Commenters requested 

whether manufacturers may choose 

either a bundled or multiple best price 

approach or whether the manufacturer 

may determine both depending on the 

preferences of their negotiating partners 

and the product characteristics. 

Response: We agree that the 

manufacturer may not want to use the 

bundled sale approach based upon the 

characteristics of the drug, such as drugs 

that treat small populations, rare and 

orphan disease drugs, and certain gene 

therapies covered under its VBP 

arrangement. As discussed in this 

section, the definition of bundled sale at 

§ 447.502 is being finalized to state that 

VBP arrangements may qualify as a 

bundled sale. We believe manufacturers 

may choose between the bundled sale 

arrangement approach to calculating 

best price, or use the multiple best price 

reporting approach, understanding that 

it is dependent upon the design of a 

manufacturer’s VBP arrangement such 

as the product and population 

characteristics of the drug therapy 

offered under the VBP arrangement, and 

whether that arrangement meets the 

regulatory definition of a VBP 

arrangement. 

We believe that the concern regarding 

treating small populations will be 

addressed by the reporting of multiple 

best prices approach. For example, in 

the event a state enters a VBP agreement 

with a manufacturer and a single 

Medicaid beneficiary has an outcome 

that results in a very high rebate under 

the VBP arrangement, the best price 

used by the manufacturer to set the 

rebate for that single unit dispensed will 

be based upon the VBP arrangement 

best price for that specific outcome. All 

other Medicaid units dispensed during 

a quarter that are eligible for rebates but 

not dispensed to Medicaid beneficiaries 

enrolled in the VBP arrangement will 

reflect the best price outside of the VBP 

arrangement. 

Comment: One commenter requested 

CMS consider replacing the phrase 

‘‘may qualify as a bundled sale’’ with 

‘‘may constitute a bundled sale’’ as it is 

the commenter’s opinion that the term 

‘‘qualify’’ appears to invite a degree of 

judgment on a matter where there is no 

clear arbiter. 

Response: Bundled sale is already 

specifically defined in regulation at 

§ 447.502. We believe manufacturers 

will need to determine whether or not 

their VBP arrangement qualifies as a 

bundled sale, and do not believe the 

suggested regulatory text change is 

necessary, as we do agree a degree of 

judgement is required to determine 

whether a VBP arrangement should be 

viewed and treated as a bundled sale. 

Comment: One commenter noted VBP 

bundling regulations do not address 

pro-rating, which may prove 

burdensome for manufacturers and may 

increase the possibility of gaming. 

Response: This comment is outside 

the scope of this rule. 

Comment: A commenter requested 

CMS to clarify whether outcomes-based 

measures created under bundled sales 

arrangements meet the proposed 

definition of a VBP arrangement. 

Response: A manufacturer may use a 

bundled sales approach if the payer’s or 

purchaser’s rebate or discount is, among 

other situations, contingent on the 

existence of a performance requirement. 

We are finalizing in this regulation that 

a VBP arrangement could qualify as a 

bundled sale. Going forward after the 

effective date of this regulation, a VBP 

arrangement that does not meet the 

definition of VBP arrangement in this 

regulation (which would include 

evidence and/or outcomes-based 

measures) will not be recognized as part 

of the bundled sale definition. 

After consideration of the comments 

received, we are finalizing subparagraph 

(3) of the definition of bundled sale to 

remove the phrase ‘‘if the arrangement 

contains a performance requirement 

such as an outcome(s) measurement 

metric’’ and read, ‘‘Value-based 

purchasing (VBP) arrangements may 

qualify as a bundled sale.’’ 

4. Definitions—Best Price (§ 447.505(a)) 

and Reporting of Multiple Best Prices, 

Adjustments to Best Price 

(§ 447.505(d)(3)) 

In the preamble to the COD final rule 

(81 FR 5253), we indicated that we 

recognized the value of pharmaceutical 

VBP arrangements in the marketplace, 

and that we were considering how to 

give specific guidance on this matter, 

including how such arrangements affect 

a manufacturer’s ‘‘best price.’’ In 

addition to CMS, States, manufacturers, 

and commercial payers all have an 

interest in making new innovative 

therapies available to patients, and we 

have heard that there are challenges 

with the current interpretation of 

statutes and regulations for how ‘‘best 

price’’ can affect the availability of VBP 

arrangements. Because the statute was 

drafted more than 30 years ago, when 

such arrangements were not prevalent 

in the market, it is understandable that 

such interpretations by CMS to date 

regarding ‘‘best price’’ have been limited 

to one ‘‘best price’’ per drug. 

The Medicaid statute defines best 

price in relevant part to mean, for a 

single source drug or innovator multiple 

source drug of a manufacturer, the 

lowest price available from the 

manufacturer during the rebate period 

to any wholesaler, retailer, provider, 

HMO non-profit entity, or governmental 

entity within the United States, with 

certain exclusions enumerated at 

sections 1927(c)(1)(C)(i)(I) through (VI) 

of the Act. Historically, we have 

interpreted this language to result in 

only one best price per drug. The 

current Medicaid ‘‘best price’’ 

regulation at § 447.505 generally tracks 

the statutory language, but reads in 

relevant part that ‘‘best price’’ means, 

for a single source drug or innovator 

multiple source drug, the lowest price 

available from the manufacturer during 

the rebate period in any pricing 


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structure (including capitated 

payments), in the same quarter for 

which the AMP is computed (emphasis 

added). 

The current regulation is interpreted 

further in the preamble language to the 

COD final rule and MDRP releases 

where we have indicated that the lowest 

price available means the lowest price 

‘‘actually realized’’ by the manufacturer 

or the lowest price at which a 

manufacturer sells a covered outpatient 

drug—that is, one lowest price available 

per dosage form and strength of a drug. 

Applied to the VBP arrangement 

context, this interpretation could result 

in setting a best price that is either at a 

greatly reduced price or possibly zero, if 

a single dosage form or strength 

dispensed to one patient is subject to a 

full or very large rebate under a VBP 

arrangement. 

Thus, we need to reconcile the 

interpretation of the statute in 

regulation, which currently 

contemplates that for any quarter, the 

‘‘best price’’ is a single price for each 

dosage form and strength of a drug that 

represents the actual revenue realized 

by the manufacturer for that drug—in 

any pricing structure offered by the 

manufacturer (such as capitated 

payments)—with the realities of the 

current evolving marketplace which 

contemplate that multiple prices could 

be made available by the manufacturer 

for a particular drug based on the drug’s 

performance (such as the case with VBP 

arrangements that use evidence or 

outcomes-based measures) in a quarter. 

In that regard, because VBP and other 

innovative payment arrangements 

sometimes result in various price points 

for a dosage form and strength of a 

single drug or therapy being available in 

a quarter, we proposed to reflect this 

possibility in the June 2020 proposed 

rule. Specifically, we proposed that a 

single drug may be available at multiple 

price points, each of which may 

establish a ‘‘best price’’, based on the 

relevant or applicable VBP arrangement 

and patient evidence-based or outcomebased measures. 

We explained in the June 2020 

proposed rule that we believed we have 

this authority because we previously 

interpreted the statutory definition of 

best price at § 447.505(a) to reference 

the best price ‘‘in any pricing structure,’’ 

contemplating the possibility of various 

pricing structures, such as capitated 

payments. With the new VBP pricing 

structures that are available in the 

marketplace, we believe it is appropriate 

and reasonable to further interpret what 

pricing structures are available, and 

account for new VBP pricing structures, 

which may include introducing the 

offering of a drug at multiple price 

points. That is, we proposed to expand 

our interpretation of ‘‘in any pricing 

structure’’ and also the term ‘‘lowest 

price available’’ by proposing that the 

price realized in a VBP arrangement by 

the manufacturer when a measure is not 

met for a single patient would not reset 

the best price for the drug in the quarter. 

That is, a single patient failure on the 

drug, or lack of attainment of an 

expected clinical outcome, would not 

result in the manufacturer having to 

give that same rebate as a result of the 

VBP arrangement to Medicaid for that 

drug as they would have to give to the 

commercial plan in which that patient 

was enrolled. However, if a state 

chooses to participate in the VBP 

arrangement offered by the 

manufacturer, the state could receive a 

URA for each patient’s particular 

outcome that is reflective of the VBP 

arrangement best price. 

Rather, we proposed that, given our 

interpretations of the statutory phrase 

‘‘lowest price available’’, and the phrase 

‘‘in any pricing structure’’ at 42 CFR 

447.505, that multiple prices could be 

realized by the manufacturer for the 

same drug in a quarter when the prices 

are tied to a particular VBP outcomes 

structure. Therefore, multiple price 

points (price points are offered and 

available as a result of a VBP program, 

and price points absent a VBP program) 

may be reported for one dosage form 

and strength in a rebate period. 

Manufacturers could offer the same or 

a different set of best price points each 

quarter for a drug, and those best price 

points would be applicable to the 

patient to whom the drug was 

administered in that particular quarter. 

Any future best price adjustments for 

that patient would be reflected in the 

outcomes that the patient achieves over 

the period of time of the VBP 

arrangement, and any price adjustments 

due to the state (if they participate in 

the VBP arrangement) would be based 

on the additional best price rebates 

reported in that quarter by the 

manufacturer in which the drug was 

first administered. Manufacturers would 

have to make any adjustments to both 

sets of best prices (VBP and non-VBP 

best prices) reported if any adjustments 

are made by the manufacturer 

subsequent to the quarter in which they 

are reported. 

As an example, when a manufacturer 

offers a VBP arrangement, and the state 

chooses to participate, the manufacturer 

would report a single best price for the 

drug for the quarter for sales of the drug 

in that quarter (a non-VBP arrangement 

best price), and in addition, the 

manufacturer would also report a 

distinct set of ‘‘best prices’’ that would 

be available based on the range of 

evidence-based or outcomes measures 

for that drug that are possible under the 

VBP arrangement. 

The manufacturer would provide a 

best price rebate to the state in the 

quarter in which the drug is 

administered, and then could offer 

varying additional rebates based on a 

patient’s response after the drug is 

administered. The calculated additional 

MDRP rebate due to the state using the 

VBP best price would be a function of 

whether or not the Medicaid rebate is 

being paid on a unit of a drug dispensed 

to a Medicaid patient that participated 

in a VBP, and the level of rebate 

associated with that patient’s outcome. 

The additional rebate paid for that 

patient would only represent the 

amount of rebate due to the state from 

the manufacturer for that patient, not all 

patients. That is, the rebate would be 

specific to that patient’s outcome and 

that price actually realized by the 

manufacturer, as that price is the lowest 

price available from the manufacturer 

based on that patient’s outcomes. 

Otherwise, the best price used in the 

Medicaid rebate formula would mirror 

the lowest price available absent a VBP 

arrangement. 

Therefore, we proposed to further 

interpret the regulatory language ‘‘in 

any pricing structure’’ to include VBP 

arrangements. Then, we proposed to 

interpret the statutory and regulatory 

phrase ‘‘lowest price available’’ as used 

in the definition of best price, to permit, 

in the context of a VBP arrangement, to 

include a set of prices at which a 

manufacturer makes a product available 

based on that pricing structure. This 

being the case, we proposed that the 

definition of best price be expanded at 

§ 447.505(a) to provide that a lowest 

price available from a manufacturer may 

include varying best price points for a 

single dosage form and strength as a 

result of a VBP (as defined at § 447.502). 

We noted that we understand the 

operational challenges this may bring to 

MDRP systems and that it will take us 

time to make such system changes. We 

solicited comments on the proposal, its 

impact on the MDRP, the commercial 

market, and its operational implications. 

Specifically, we requested comments 

regarding the potential impact of these 

changes on supporting payment 

innovation and health care quality. We 

also sought comment on steps which 

would be needed by manufacturers and 

states to implement these Best Price 

changes, including how states would 

track health outcomes for Medicaid 

beneficiaries to align with the outcomes 

developed in a private market VBP. 


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Also, to provide consistency between 

AMP and best price, as we did in the 

COD final rule (81 FR 5170), we 

proposed to revise § 447.505(d)(3) to 

make it consistent with § 447.504(f)(3). 

Section 447.504(f)(3) provides that the 

manufacturer must adjust the AMP for 

a rebate period if cumulative discounts, 

rebates, or other arrangements 

subsequently adjust the prices actually 

realized to the extent that such 

cumulative discounts, rebates, or other 

arrangements are not excluded from the 

determination of AMP by statute or 

regulation. We proposed to add a 

similar qualifying phrase at the end of 

§ 447.505(d)(3) to state that the 

manufacturer must adjust the best price 

for a rebate period if cumulative 

discounts, rebates or other arrangements 

subsequently adjust the prices available, 

to the extent that such cumulative 

discounts, rebates, or other 

arrangements are not excluded from the 

determination of best price by statute or 

regulation. We believe this is consistent 

with the requirement at section 

1927(c)(1)(C)(ii)(I) of the Act, which 

provides that best price shall be 

inclusive of cash discounts, free goods 

that are contingent on any purchase 

requirement, volume discounts and 

rebates, and therefore, best price must 

account for these to the extent they are 

not excluded by statute or regulation. 

We received the following comments 

on the definitions—Best Price 

(§ 447.505(a)) and Reporting of Multiple 

Best Prices, Adjustments to Best price 

(§ 447.505(d)(3)). 

Comment: A few commenters 

expressed support for CMS’ proposed 

changes regarding the reporting of 

multiple best prices, specifically 

regarding adjustments for cumulative 

discounts, rebates or other 

arrangements. Several commenters also 

suggested alternative approaches to 

CMS’ proposals for best price and 

reporting of multiple best prices such 

as: 

• Include all payments related to VBP 

arrangements, including administrative 

fees, in the best price calculation. 

• Allow the discounts across various 

VBP agreements to be pooled together to 

create an Average Best Price from the 

VBP agreements or pool outcomes (both 

successes and failures) across all VBP 

agreements and apply them to the most 

favorable VBP agreement to determine a 

VBP Best Price. 

• Require manufacturers to report 

only one VBP best price in any given 

quarter in addition to the current best 

price calculations. 

• Use CMS authority under the MDRP 

to provide technical clarifications about 

how best price could be reasonably 

reported under contracts in which 

discounts vary based on patients’ 

clinical outcomes, without eliminating 

or dramatically weakening the best price 

requirement. 

• Provide incentives to manufacturers 

to have VBPs for all new curative 

therapy drugs for a defined period (for 

example, 5 years) following a drug’s 

approval, applicable to all Medicaid 

recipients. 

• Administer value-based payments 

and best price as a true-up model that 

would allow state Medicaid programs to 

continue to obtain whatever best price 

was agreed to at the time a VBP was 

created and that, by updating the 

definition of VBP and extending the 

Best Price adjustment period for VBP 

only, they would allow for a true-up/ 

rebate adjustment for the MDRP. 

Response: We appreciate the support 

for the proposed changes to best price 

and the alternatives proposed by 

commenters, and may consider them in 

future rulemaking. We are finalizing our 

proposal that manufacturers be 

permitted to report multiple best prices 

based upon commercially-available VBP 

arrangements made available to states 

that satisfy the regulatory definition of 

a VBP arrangement. We believe that we 

have attempted to address via this 

regulation technical clarifications about 

how best price could be reasonably 

reported without eliminating or 

dramatically weakening the best price 

requirement. That is, by permitting 

manufacturers to report multiple best 

prices in accordance with § 447.505(a) 

for VBP arrangements offered to states 

that satisfy the regulatory definition of 

a VBP arrangement we are finalizing in 

this rule, it guarantees those states that 

agree to participate receive the best 

price under the VBP arrangement. 

Furthermore, as explained in section II. 

G. of this final rule, we are finalizing a 

policy to permit manufacturers to 

request a change as a result of a VBP 

arrangement, as defined in § 447.502, 

outside of the normally applicable 

requirement to report within 12-quarters 

from the quarter in which the data were 

due, when the outcome must be 

evaluated outside of the 12-quarter 

period. Otherwise, states that do not 

participate will continue to receive a 

Medicaid rebate based upon the nonVBP best price as reported by the 

manufacturer. 

Comment: Several commenters did 

not support the proposed changes to 

best price reporting and stated that these 

changes violate the Medicaid rebate 

statute, exceed CMS’s authority, and 

disregard Congressional intent. A few 

commenters noted that the proposed 

MDRP best price requirements 

undermine competition and 

recommended CMS consider additional 

reforms to the MDRP to correct the 

impact it has had on drug market 

dynamics. One commenter noted that 

the current Medicaid rebate program is 

an effective tool for states to control 

drug prices, combat inflation and 

egregious price increases and to allow 

multiple best prices would put states at 

risk for incorrect price reporting. 

Several commenters expressed 

opposition to CMS’ proposed changes 

regarding the language ‘‘in any pricing 

structure’’, and noted that CMS’ 

proposal is inconsistent with the 

Medicaid Drug Rebate statute’s 

definition of best price and contrary to 

CMS’s treatment of other similar 

transactions in AMP and best price. 

Another commenter noted that the 

proposal contradicts the best price 

statute citing their belief that ‘‘lowest 

price’’ is understood to be a single 

lowest price. A few commenters noted 

that the proposal does not limit the 

number of unique VBP arrangements a 

manufacturer may create, nor does it 

limit the number of pricing tiers within 

each VBP arrangement and believes that 

the segmentation this creates 

significantly weakens best price 

protection, while one commenter stated 

that the proposed changes would create 

higher rebates across all Medicaid units. 

Response: We do not believe the 

policy permitting manufacturers to 

report multiple best prices in 

accordance with § 447.505(a) for VBP 

arrangements offered to states that 

satisfy the regulatory definition of a VBP 

arrangement we are finalizing in this 

rule weakens the best price requirement 

or exceeds our authority. As discussed 

above, manufacturers will be required to 

continue to report, and states not 

participating in the VBP arrangement 

would be able to access, a separate best 

price based upon prices available 

outside of the VBP arrangement to best 

price eligible entities for the dosage 

form and strength of the drug. If a 

manufacturer chooses not to offer a VBP 

arrangement to states, or simply chooses 

not to report multiple best price points 

resulting from a VBP arrangement, then 

manufacturer reporting would follow all 

existing laws and regulations regarding 

the best price determination. 

We reiterate that states will not be 

required to participate in these VBP 

arrangements and in cases when a 

manufacturer is reporting multiple best 

prices pursuant to a VBP arrangement 

will receive a Medicaid drug rebate 

based upon the non-VBP best price for 

the drug for the quarter in which the 

drug is administered. The final policy 

simply permits manufacturers to report 


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a distinct set of multiple best prices for 

a VBP arrangement (or multiple sets if 

there is more than one in the 

marketplace), in addition to reporting a 

single best price for the drug not 

affiliated with a VBP arrangement. This 

ensures that when a state agrees to 

participate in one of the manufacturer’s 

VBP arrangements, the additional 

rebates that could be paid to a state 

reflects the best prices associated with 

the VBP arrangement. We reiterate that 

the initial rebate to all states in the 

quarter in which the drug is 

administered, under either the non VBP 

or VBP arrangement, will be at least 

equal to the greater of 23.1 percent of 

the AMP or AMP minus best price (be 

it a multiple best price or the non-VBP 

best price). 

In order to report multiple best prices, 

the manufacturer must make available 

to the states the VBP arrangement (or 

multiple VBP arrangements) being 

offered on the commercial market. 

States may have the option to 

participate in that VBP arrangement. 

Manufacturers may also choose not to 

report multiple best prices approach for 

their VBP program, and follow existing 

rules, or, as appropriate, choose another 

approach to determining best price (and 

AMP) such as the bundled sales 

approach. For example, when a 

manufacturer follows the bundled sales 

approach, the manufacturer will not 

report multiple best prices associated 

with the arrangement and will report 

one best price using the bundled sales 

approach. Please see the discussion in 

section II.G.3. of this final rule, for a 

more detailed explanation of the 

bundled sales approach to VBP 

arrangements. 

The rationale for the proposed 

changes is to give manufacturers the 

ability to offer VBP arrangements to 

commercial payers and Medicaid 

without having the current 

interpretation of best price result in 

disincentives for manufacturers to offer 

these innovative pricing strategies 

because doing so could dramatically 

increase their Medicaid drug rebates 

based on a single sale. 

The expanded interpretation of best 

price, such that a manufacturer could 

offer multiple best prices for a single 

dosage form and strength of a drug, in 

addition to a non-VBP best price, is 

consistent with the statute, as the MDRP 

was structured to reduce the cost of 

drug therapies to all states by allowing 

Medicaid to take advantage of the 

negotiating abilities of the private 

sector. Given the evolution in the 

marketplace since the original law was 

drafted in 1990, and the availability of 

new expensive gene therapies that could 

have different clinical outcomes in 

different patients, we believe that it is 

reasonable for the agency to make an 

interpretation of the statute and 

regulations that the ‘‘lowest price 

available’’ ‘‘in any pricing structure’’ 

could be interpreted as a VBP 

arrangement under which different 

prices are available based on different 

outcomes. 

Comment: A few commenters noted 

the proposed changes to multiple best 

price reporting structure will increase 

burden on manufacturers. One 

commenter noted that reporting 

individual patient prices would not add 

value to the healthcare system and 

would create an unnecessary 

administrative burden upon both CMS 

and manufacturers. 

Response: We do not agree that there 

is unnecessary burden on manufacturers 

as we are not requiring manufacturers 

engage in VBP arrangements or report 

individual patient prices under this 

final rule. Instead, this rule gives 

manufacturers the ability to report more 

than a single best price (multiple best 

prices), at their option, when offering a 

VBP arrangement on the commercial 

market that they also offer to states. 

State Medicaid programs will have the 

option to either participate or not in the 

commercially available VBP 

arrangement. Therefore, the change does 

not place any additional burden on 

manufacturers or the states, but rather 

establishes a tool (the ability to report 

more than one best price) to reduce the 

disincentives for manufacturers to offer 

these innovative pricing strategies 

because doing so could dramatically 

increase their Medicaid drug rebates 

based on a single sale. 

Comment: Some commenters noted 

that CMS should determine if the 

proposed new options in best price 

reporting will complement, or perhaps 

inspire, private sector innovations in 

reinsurance, stop-loss protection and 

other business insurance products that 

will make VBP arrangements feasible for 

payers. 

Response: These comments are 

outside the scope of this rule. 

Comment: One commenter 

recommended CMS remove the option 

to report multiple best prices in VBP 

arrangements, and instead use the 

bundled sale methodology to 

incorporate all VBP best prices into one 

URA, such that commercial VBP 

payments are not treated differently 

from any other rebate and limit the 

number of VBP arrangements a 

manufacturer may offer. 

Response: We do not believe using the 

bundled sale approach will be workable 

for all manufacturers in all situations, 

which is why we proposed the change 

to the determination of best price to 

permit multiple best prices. 

Specifically, certain manufacturers of 

drugs indicated for use in limited 

populations will not have a large 

number of sales in a quarter to spread 

out discounts as a result of a bundled 

sale. This being the case, a VBP 

arrangement that results in a significant 

discount (for example, 75 percent 

discount) will impact best price 

significantly if only 1–3 units are 

dispensed per quarter. 

Comment: Several commenters 

requested clarifying guidance regarding 

the best price and inclusion of prices 

from VBP arrangements, as well as the 

reporting requirements, operational 

timelines, and the treatment of non-VBP 

arrangement rebates. A few commenters 

recommended that CMS update the DDR 

system to accommodate non-manual 

reporting of multiple best prices to align 

with the effective date of the final policy 

and ensure such system updates 

accommodate products with both VBP 

and non-VBP arrangements. A few 

commenters requested more guidance 

on CMS’ URA reporting mechanism and 

methodology. 

Some commenters recommended 

CMS not finalize the proposed change to 

the definition of best price that includes 

a reference to ‘‘varying price points’’ 

until guidance has been developed and 

all of the implications on program 

integrity and other prices have been 

thoroughly considered. Several 

commenters urged CMS to establish 

clear and specific regulatory provisions 

for codification in the CFR for 

manufacturers to follow in applying the 

multiple best prices authority set forth 

in the proposed rule. 

A few commenters also expressed 

concern regarding the operational 

implications for manufacturers with 

CMS’ proposals related to best price 

reporting, as well as the possible 

resource constraints that, in their 

opinion, may be too great to overcome. 

One commenter noted that the multiple 

best price approach imposes an 

unreasonable administrative burden on 

VBP arrangement participants because a 

drug manufacturer would require data 

from PBMs and health plans with 

sufficient detail to support a per 

product, per customer, per quarter, per 

unit price to report and certify an 

accurate best price. Many commenters 

noted additional resources, including 

staffing and information technology may 

need to be invested by CMS, payers, and 

manufacturers to support the proposed 

price reporting methodology, with a few 

commenters further suggesting CMS 

utilize a single federal contractor to 


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monitor VBP arrangements available in 

the market and support data collection 

and analysis; and allowing multi-state 

VBP contracts to support pooling of 

state administrative resources and a 

larger pool of covered lives for VBP 

negotiations. One commenter cautioned 

that the proposal would introduce 

complexities that would outweigh the 

benefits for states that the proposal 

envisions and instead proposed that 

CMS adopt the weighted average 

multiple best price calculation as 

facilitated by the revised bundled sales 

provision. 

Response: We agree with the 

commenters regarding the operational 

and administrative challenges for CMS, 

manufacturers, states and payers and we 

intend to provide additional necessary 

technical and operational guidance 

regarding various aspects of the 

program, such as the reporting of 

multiple best prices in MDRP systems. 

In addition, we have decided to delay 

the effective date of the revised 

definition of best price at § 447.505(a) 

until January 1, 2022, which will permit 

manufacturer reporting of varying best 

price points for a single dosage form and 

strength as a result of a value based 

purchasing arrangement that meets the 

definition at § 447.502. 

The delayed effective date of this new 

policy is the direct result of many 

commenters who described some of the 

implementation complexities with this 

new approach. Over the next year, 

states, CMS, manufacturers and payers 

will need to make the necessary policy, 

clinical, contractual, system, and 

administrative modifications that will 

be necessary to give the program the 

best chance for success. We expect 

manufacturers may want to initially 

focus the development of these VBP 

programs on those drugs and therapies 

that are the most expensive to the 

Medicaid program, such as gene and 

cell therapies, and accelerated approval 

drugs, so that the VBP arrangement can 

have the most potential impact on 

making these drugs more available to 

Medicaid patients. 

Comment: A few commenters 

requested clarification as to whether the 

manufacturer reporting multiple best 

prices is voluntary and requested 

clarification that if a state does not want 

to track outcomes or participate in a 

VBP arrangement, their best price will 

automatically revert to the traditional 

method as calculated based on the price 

of the therapy when it is sold outside of 

a VBP arrangement. 

Response: Manufacturers that want to 

report multiple best prices associated 

with its VBP arrangement must offer 

those VBP arrangements to the states. 

Otherwise manufacturers will not be 

permitted to report multiple best prices 

for their VBP arrangements. If a 

manufacturer does not want to offer the 

VBP arrangement to the states, it will 

only be permitted to report one best 

price for that drug or biological, and that 

best price must be inclusive of any and 

all prices as a result of a VBP 

arrangement offered on the commercial 

market. When manufacturers offer the 

VBP arrangement to the states, states 

will have the option to enter into these 

VBP arrangements and be guaranteed a 

Medicaid rebate based upon the 

multiple best prices. Or, the state may 

opt not to participate and continue to 

receive Medicaid drug rebates 

calculated based on the best price of the 

drug outside of a VBP arrangement and 

that rebate would not be impacted by 

the multiple best prices reported by the 

manufacturer for its VBP arrangement. 

States that choose not to participate in 

the VBP arrangement that the 

manufacturer has made available under 

the multiple best price approach may 

want to consider entering into their own 

CMS-authorized VBP supplemental 

rebates agreement with the 

manufacturer. States will need to ensure 

that a supplemental rebate agreement 

with the manufacturer is approved by 

CMS via the existing SPA template 

process. Rebates received as a result of 

the CMS-authorized supplemental 

rebate agreement will be exempt from 

best price. 

Comment: A few commenters urged 

CMS to clarify that states do not need 

to seek SPAs to enter into VBP 

arrangements, whether based upon 

manufacturer arrangements with 

commercial payers or on their own. 

Response: States are not required to 

submit a SPA if they seek to enter into 

VBP arrangements offered by 

manufacturers as part of the multiple 

best price approach as these 

arrangements are not CMS-authorized 

SRAs. States that wish to enter into their 

own VBP arrangements with 

manufacturers, where such prices 

would be exempt from best price, will 

continue to be required to submit a 

template that CMS can approve as part 

of a SPA process. 

Comment: Several commenters 

wanted states to be protected under the 

expansion of the definition of best price. 

Several commenters asserted the 

proposed changes could bar states from 

benefiting from the best price under 

VBP arrangements if a manufacturer 

chooses to report a range of best prices 

rather than through a bundled sale and 

if the state’s Medicaid program does not 

have a VBP arrangement with that 

manufacturer. One commenter 

expressed concern that manufacturers 

could potentially exclude states from a 

VBP arrangement by extending VBP 

opportunities exclusively to private 

payers, leaving states subject to only 

mandatory rebates on high list price 

products. 

Response: There is no risk to states 

under the multiple best prices reporting. 

Manufacturers that want to report 

multiple best prices associated with 

their VBP arrangements available on the 

commercial market must make these 

arrangements available to the states. In 

order to participate in the VBP 

arrangement, states must meet the 

requirements of the VBP arrangement as 

offered by the manufacturer. While 

states will be given the opportunity to 

participate in these VBP arrangements, 

they will not be required to enter into 

these arrangements. States will need to 

assess whether or not they want to 

participate in these VBP arrangements 

and if they do not want to participate in 

the VBP arrangements using the 

multiple best prices approach, they may 

continue to receive Medicaid drug 

rebates based solely upon the best price 

available outside of the VBP 

arrangement (even if the manufacturer 

offers a VBP arrangement and reports 

multiple best prices to CMS) and may 

continue to negotiate supplemental 

rebates with manufacturers under a 

CMS-authorized SRA, which could 

include their own VBP arrangements. 

Comment: Commenters expressed 

concern that the proposed rule will 

facilitate manufacturers entering into 

VBP arrangements with commercial 

payers and will provide little benefit to 

state Medicaid programs, and stated that 

the proposal would increase Medicaid 

drug costs citing their belief that the 

proposed changes would reduce the 

total rebates drug manufacturers pay to 

Medicaid. A few commenters opined 

that the proposed changes would 

exacerbate existing best price reporting 

challenges and make it more difficult for 

states to ensure drug manufacturer 

compliance with best price 

requirements. One commenter noted the 

proposed changes to best price to 

facilitate adoption of VBP arrangements 

would undermine the MDRP and enable 

manufacturers to significantly reduce or 

delay the rebates they would otherwise 

have to pay under current law, thereby 

increasing Medicaid drug costs. 

Response: States will benefit from 

these multiple best price VBP programs 

as this approach will allow all states to 

take advantage of and participate in the 

VBP arrangements which manufacturers 

may have been heretofore reluctant to 

offer because of various reasons, 

including the requirement that 


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18https://www.medicaid.gov/medicaid/ 

prescription-drugs/program-releases/ 

index.html?search_api_

fulltext=dispute+resolution&field_

date%5Bmin%5D=03%2F21%2F1991&field_

date%5Bmax%5D=11%2F16%2F2020&sort_

by=field_date&sort_order=DESC&items_per_

page=10%23content#content. 

manufacturers only report one best price 

per quarter. For example, a significant 

rebate to a commercial payer for a drug 

that did not achieve its clinical 

objectives under a VBP arrangement 

could reset the best price in Medicaid, 

and require the manufacturer to give 

that significant rebate to all Medicaid 

patients, even if the Medicaid patient 

taking the drug met the clinical 

objective. 

This multiple best price approach will 

also protect states that do not want to 

participate in VBP by requiring that, for 

a dosage form and strength for a drug for 

each quarter, that a manufacturer report 

a best price unrelated to a VBP 

arrangement, and such best price will 

reflect the lowest price available to a 

best price eligible entity that is not 

participating in the VBP arrangement. 

This approach may also reduce the 

need for additional states, beyond the 

nine that have approved CMSauthorized SRA VBP SPAs, to submit a 

SPA to CMS to obtain approval for a 

template to enter into their own CMSauthorized SRAs with a VBP 

arrangement. This multiple best price 

approach will allow any state that wants 

to participate in a manufacturer VBP 

arrangement to have the option to do so. 

As always, states may continue to 

negotiate additional rebates using CMSauthorized SRAs if they so choose. 

Thus, we do not believe states will 

realize a reduction in the federal 

Medicaid rebate with the 

implementation of this policy, and/or if 

they decide not to participate in the 

VBP arrangement being offered because 

in all cases the manufacturer will be 

required to report a separate best price 

available outside of the VBP 

arrangement. The separate best price 

will be the basis for the Medicaid drug 

rebates for states that choose not to 

participate. 

Comment: A few commenters 

expressed concern that the rule as 

written, does not include a mechanism 

for states to be aware of commercial 

VBP arrangements or to ensure 

outcomes measures in VBP 

arrangements will exactly match those 

of any commercial payer in any given 

quarter during the VBP negotiation 

process. One commenter noted that 

states would need to know the terms of 

the commercial patient outcome-based 

price concession arrangement to ensure 

Medicaid rebate amounts are properly 

determined under the multiple best 

price approach. Another commenter 

recommended requiring manufacturers 

to share specific details of their VBP 

arrangements with CMS and to allow 

CMS to develop a mechanism to share 

certain details with states, so the states 

may consider a similar arrangement. 

Response: Manufacturers that want to 

report multiple best prices associated 

with their VBP arrangements in the 

commercial market will be required to 

offer these arrangements to the states. 

We will share these multiple best prices 

with states as we do other manufacturer 

pricing benchmarks, such as AMP and 

unit rebate amounts. The mechanism of 

how these arrangements will be 

communicated to the states will be set 

forth in CMS operational guidance. We 

will not be a party to any of these VBP 

arrangements, and therefore, will not be 

privy to the specifics of the VBP 

arrangements (for example, the terms of 

the patient outcomes price concession 

or responsibility of fees associated with 

data collection and evaluation) 

negotiated between the payers, 

including states, and the manufacturer. 

Comment: A few commenters 

expressed concern that commercial 

VBPs available on the market may be 

difficult to apply to the Medicaid 

market. The commenters noted that this 

would result in states not being eligible 

for a best price URA based on payments 

made under a commercial VBPs. One 

commenter questioned the validity of 

applying VBP arrangements from the 

commercial markets to a Medicaid 

population as the commenter noted the 

measures are tied to certain evidence- or 

outcomes-based measures that were 

carefully selected and tailored to a 

specific, commercially-insured 

population. A few commenters 

requested CMS clarify that a state 

Medicaid agency should have in place 

data collection and adjudication 

processes, inclusive of dispute 

resolution, that are sufficiently robust to 

administer the VBP arrangement to the 

same degree of reliability as it is 

administered between a drug 

manufacturer and a commercial payer. 

Response: We appreciate the 

commenters’ concerns about the 

applicability of some commercial VBP 

arrangements to the Medicaid 

population. It is our general impression 

that in some cases, both Medicaid and 

commercial payers may have similar 

patient population characteristics that 

would allow for the applicability of a 

commercial payer VBP to Medicaid, and 

in other cases it may not. In those latter 

cases, the state will have to determine 

whether it wants to participate in the 

VBP arrangement that is being offered 

on the commercial market, and that the 

manufacturer is reporting to us and 

offering to all states. While we are not 

requiring that manufacturers design 

their VBP arrangements with Medicaid 

in mind, we would expect that they will 

consider this to avail themselves of the 

regulatory flexibilities being finalized in 

this rule. We believe this policy will 

help achieve the goal of increasing 

Medicaid patient access to new 

innovative drug therapies. 

We also believe that there may be 

multiple manufacturer VBP 

arrangements in the market, and our 

policy requires that manufacturers that 

want to report multiple best prices 

associated with their VBP arrangements 

must offer them to states in order to 

avail themselves of this regulatory 

flexibility being finalized in this rule. A 

state will determine which VBP 

arrangements might work best with its 

patient population. 

Finally, states can use a CMSapproved supplemental rebate 

agreement to enter into their own VBP 

agreements with manufacturers for a 

drug if none of the multiple best price 

VBP arrangements reported by 

manufacturers to CMS for that drug 

would be useful in that state’s Medicaid 

populations. 

With respect to dispute resolution, we 

would expect that states and 

manufacturers would continue to work 

cooperatively to resolve any rebate 

disputes whether they are related to 

rebates paid under non VBP or VBP 

arrangements. We have issued several 

guidances on dispute resolution (see 

Manufacturer and State Releases 18). 

Comment: Several commenters 

requested CMS provide funding for VBP 

arrangements to provide state Medicaid 

agencies with funding for IT 

infrastructure needed for performance 

tracking and interstate or cross-payer 

interoperability. Commenters believe 

that the breadth of possible VBP 

arrangements could pose a serious 

financial burden for state Medicaid 

agencies to monitor and would require 

significant modification of state and 

vendor rebate systems to incorporate 

multiple URAs based on each outcome. 

Another commenter questioned if states 

are permitted to contract with vendors 

to perform patient monitoring of 

outcomes for VBP arrangements. A few 

commenters requested CMS offer forms 

of federal support to help commenters 

build appropriate infrastructure for 

these proposed arrangements. 

Response: We have no plans to 

provide federal funding to facilitate 

states’ participation in VBP 


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arrangements. States are not required to 

participate in VBP arrangements and 

will have to make those decisions based 

on their own administrative and 

operational considerations. As stated in 

response to prior comments, states will 

have a choice as to whether or not they 

want to enter into VBP arrangements. 

Comment: A few commenters 

suggested that CMS require 

manufacturers to submit their 

commercial VBPs to CMS so that it can 

inform states of the drugs and outcome 

measures in those commercial VBPs. 

Another commenter suggested CMS 

require manufacturers to ‘‘lock in’’ an 

estimated Best Price for the duration of 

the contract and apply a CMS-overseen 

reconciliation process to protect states 

from the uncertainty the proposed 

change may create, and that CMS could 

use the commercial VBPs submitted by 

manufacturers to develop a VBP 

contract template that states could use 

to ensure that they were in alignment. 

Response: CMS will be looking at 

ways to make information regarding 

manufacturer VBP arrangements that are 

offered on the commercial market 

available to states. We will not, 

however, be involved in the approval or 

review of the specifics of any VBP 

arrangements offered by manufacturers 

to commercial payers; nor will we be 

engaged in the negotiation of terms 

between manufacturers and payers or 

states. Furthermore, we will not be 

imposing additional requirements or 

requesting manufacturers change their 

VBP arrangements when they make 

their arrangements available to the 

states. At a minimum, as discussed 

earlier in this section, states will 

continue to receive the Medicaid drug 

rebate for a covered outpatient drug 

consistent with the separate best price 

reported by the manufacturer outside of 

the VBP. 

Comment: One commenter requested 

clarification that the duration of a VBP 

arrangement contract is a term that a 

state Medicaid agency would need to 

adhere to in order to take advantage of 

the proposed multiple best price 

approach, as it is central to a VBP 

arrangement (in the commercial sector 

or otherwise). 

Response: This rule does not speak to 

the specific terms that should or should 

not be included in VBP arrangement 

contracts. 

Comment: A commenter 

recommended that the VBP exemption 

from best price apply only when a 

pharmaceutical manufacturer pays for 

the entire cost of a drug during the 

entire length of the prescription. 

Response: We assume the commenter 

is under the impression that the 

multiple best prices as they pertain to 

VBP arrangement offered on the 

commercial market allows the 

manufacturer to exempt those prices 

from ‘‘best price.’’ We are not exempting 

VBP prices from a manufacturer’s best 

price. Rather, we are allowing 

manufacturers to report both a non-VBP 

best price for a drug and multiple best 

prices for a drug based on a VBP 

arrangement when the manufacturer 

offers the VBP arrangement to all states. 

Comment: One commenter requested 

CMS clarify if manufacturers would 

initially calculate the best price they 

report to the federal government by 

looking at the expected net price under 

the VBP arrangement, based on the 

expectations of the manufacturer and 

the private purchaser using available 

clinical data. 

Response: Manufacturers permitted to 

report multiple best prices pursuant to 

a VBP arrangement would make two 

best price reports each quarter to CMS, 

one that includes the best price of the 

drug net of any discounts or offsets that 

are unrelated to the VBP arrangement, 

and the other that includes the set of 

multiple best prices offered under the 

VBP arrangement (offset by applicable 

discounts) based upon the outcomes of 

the VBP arrangement. 

Comment: One commenter urged 

CMS to ensure that methods other than 

the bundled sale concept and the 

multiple best prices are available to 

accommodate the unique factors 

associated with extremely rare 

disorders. 

Response: We believe that the final 

policies in this rule with respect to 

reporting best price under a VBP 

arrangement will accommodate 

manufacturers of covered outpatient 

drugs for rare diseases because 

manufacturers will not face the same 

rebate consequences if one patient fails 

on the therapy. Furthermore, the 

publication of this final regulation does 

not mean CMS may not consider other 

approaches addressing unique 

circumstances as part of a future 

rulemaking. 

Comment: One commenter requested 

CMS mandate that a manufacturer base 

its best price reporting on the lowest 

price available in the marketplace, 

including one that arises from a VBP 

arrangement offered in the commercial 

marketplace (either by using the 

bundled sale calculation rules or 

reporting multiple best prices), as well 

as what the manufacturer offers to any 

state Medicaid program or Medicaid 

MCO that wishes to engage in the VBP 

arrangement. 

Response: Manufacturers are already 

required to report the lowest price 

available to most entities on the 

commercial market, as included in the 

definition of best price at § 447.505(a). 

This rule does not change that, but 

rather allows manufacturers to report 

varying best price points for a single 

dosage form and strength when it offers 

a VBP arrangement to all states. If the 

VBP arrangement is not offered to states, 

the manufacturer will report one best 

price for the dosage form and strength 

of the drug which would include any 

and all prices and rebates, and 

subsequent adjustments, associated with 

the manufacturer VBP arrangements in 

accordance with the best price 

requirements at § 447.505. 

Comment: Some commenters noted 

that CMS should clarify that ‘‘any 

pricing structure’’ in the definition of 

best price is inclusive of any and all 

pricing structures. 

Response: We do not believe it is 

necessary to further clarify the 

regulatory language ‘‘any pricing 

structure’’ as used in 42 CFR 447.505(a). 

We are expanding the definition of best 

price to allow manufacturers to include 

the lowest price available from a 

manufacturer to include varying best 

price points for a single dosage form and 

strength as a result of a VBP 

arrangement. The reference to any 

pricing structure in this case is made to 

indicate that we consider a VBP 

arrangement to be a form of a pricing 

structure. 

Comment: A commenter suggested 

that for a patient to be deemed to have 

participated in a VBP, the patient must 

be a patient covered by a state that has 

an executed, signed agreement with the 

manufacturer setting forth the same 

terms and conditions set forth in the 

corresponding commercial VBP on 

which the multiple best prices are 

based. 

Response: Manufacturers will be 

required to offer the same terms and 

conditions to states as set forth in its 

corresponding commercial VBP that is 

used to set its multiple best prices. 

Comment: A few commenters noted 

that expanding the definition of best 

price to provide that a lowest price 

available from a manufacturer may 

include varying best price points for a 

single dosage form and strength as a 

result of a VBP could allow 

pharmaceutical companies to raise the 

prices of life indispensable medications. 

One commenter requested CMS clarify 

the proposal citing their concern that a 

single best price for a less effective 

dosage form and strength could limit the 

ability of coming to VBPs for other 

dosages. 

Response: We do not believe that this 

regulation encourages pharmaceutical 


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companies to raise prices for a single 

dosage form and strength of a drug. The 

current Medicaid drug rebate regulation 

continues to include an inflation 

penalty in the form of an additional 

rebate if AMP for the dosage form and 

strength of a drug increases at a rate 

greater than inflation (as measured by 

the consumer price index for all urban 

consumers—United States average) (see 

sections 1927(c)(2) and (c)(3)(C) of the 

Act and § 447.509(a)(2) and (7)). These 

would apply to drugs that are included 

under a VBP arrangement. Therefore, 

the Medicaid drug rebate calculation 

continues to include a disincentive to 

manufacturers increasing drug prices. 

Comment: One commenter 

recommended excluding any price 

concessions received under a VBP 

arrangement from the best price 

calculation citing their belief that this 

would increase the adoption of VBP 

arrangements. 

Response: Section 1927(c)(1)(C)(ii) of 

the Act provides that the term best price 

shall be inclusive of cash discounts, free 

goods that are contingent on any 

purchase requirement, volume 

discounts, and rebates (other than 

rebates under section 1927 of the Act). 

Therefore, manufacturers must include 

all discounts available, including 

discounts as a result of a VBP 

arrangement in best price. This rule did 

not propose to add an exclusion of all 

prices as a result of a VBP arrangement 

when determining best price. Instead, it 

allows manufacturers to report multiple 

best prices associated with a VBP 

arrangement to reflect the discounts/ 

prices available under these 

arrangements. Manufacturers must make 

adjustments to best price for a drug 

(either for a single reported best price or 

multiple best price arrangement) as a 

result of any subsequent discounts or 

price concessions that may occur. 

Comment: One commenter requested 

guidance on how multiple best prices 

will be audited, especially if predicated 

on the attainment of patient-specific 

outcomes that rely on personal health 

information that may need to be 

protected under the Health Insurance 

Portability and Accountability Act of 

1996 (Pub. L. 104–191, enacted August 

21, 1996) (HIPAA) and/or other law or 

regulation. 

Response: We will not audit how 

multiple best prices will be determined 

or how the parties participating in the 

VBP arrangements will measure patientspecific outcomes using potentially 

protected health information under 

HIPAA. However, parties participating 

in these VBP arrangements should be 

aware of potential HIPAA requirements 

when patient-specific data is used to 

measure outcomes. Manufacturer 

information reported under section 1927 

of the Act for purposes of the Medicaid 

rebate (for example, AMP and best 

price) is subject to audit by the 

Inspector General of the Department of 

Health and Human Services in 

accordance with section 1927(b)(3) of 

the Act. 

Comment: A few commenters urged 

CMS to safeguard proprietary pricing 

information, such as the multiple best 

prices under a VBP arrangement, the 

terms of which are confidential between 

the state or payer and manufacturer. 

Response: Information disclosed by 

manufacturers to CMS in accordance 

with manufacturer reporting 

requirements set forth at section 

1927(b)(3) of the Act, including pricing 

information related to the reporting of 

multiple best prices, will be subject to 

the confidentiality of information 

requirements at section 1927(b)(3)(C) of 

the Act. 

Comment: One commenter noted the 

proposed rule does not explain how 

manufacturers will report initial prices 

under a VBP arrangement if those prices 

vary based on anticipated patient 

outcomes. 

Response: Manufacturers will submit 

a non-VBP best price following the 

methodology for determining best prices 

in accordance with § 447.505. We 

intend to have the manufacturer report 

the multiple best prices as a separate file 

in MDRP systems which we will grant 

access to states that choose to 

participate in the manufacturer’s VBP 

arrangement. More information 

regarding the reporting of multiple best 

prices in our system will be provided in 

operational guidance. 

Comment: One commenter 

recommended the Medicaid rebate 

amount true-up process could utilize 

one of two existing Reconciliation of 

State Invoice (ROSI) functionalities: A 

ROSI functionality applicable to SRA or 

a ROSI functionality applicable to 

‘‘extra rebates.’’ 

Response: We will take this 

recommendation and welcome 

additional recommendations regarding 

the intersection between multiple best 

prices and the functionality of the ROSI. 

Comment: A commenter 

recommended that CMS require 

manufacturers to pay interest fees based 

on the statutory late payment penalty 

rate in the event that evaluation of 

outcomes-based measures causes rebates 

to be delayed. 

Response: In accordance with the 

NDRA, manufacturers will continue to 

be responsible for timely payment of 

applicable rebates within 30 days so 

long as the state invoice contains, at a 

minimum, the number of units paid by 

NDC under the state plan in accordance 

with section 1927(b)(1)(A) of the Act. 

Manufacturers that do not pay rebates in 

time, regardless of the reason, must 

follow existing operational guidance 

relating to interest application found in 

various Program Releases, including 

State Releases #29, and #166, as well as 

Manufacturer Release #7. Program 

Releases are here—Medicaid Program 

Releases. 

Comment: One commenter 

recommended CMS consider coupling 

this final rule with an OIG proposed 

rule to create a safe harbor for VBP 

arrangements for medical products or 

pursuing future rule-making to produce 

a new safe harbor from the AntiKickback Statute, which might consider 

manufacturers’ data monitoring and 

outcome tracking activities as unlawful 

inducement. 

Response: This regulation is specific 

to the impact of VBP arrangements on 

price reporting associated with the 

MDRP. We will not be providing 

guidance to manufacturers regarding 

how their particular VBP arrangements, 

including data monitoring and tracking 

activities, may violate the Anti-kickback 

statute. 

Comment: Many commenters 

requested clarification of the impact of 

the proposed multiple best price 

approaches to AMP, average sales price 

(ASP), and 340B ceiling price. Several 

commenters urged CMS to issue 

additional rulemaking before allowing 

340B covered entities to leverage VBPassociated prices and clarify the best 

price to be used when calculating 340B 

ceiling price as well as ASP. A few 

commenters requested that HRSA and 

Medicare Part B be involved so that 

CMS can carefully examine the impact 

of VBP agreements on state budgets, 

safety net provider participation in the 

340B program and other government 

pricing programs such as Part B 

(including calculation of ASP). Several 

commenters recommended that CMS 

consider revising its proposed approach 

to VBP arrangements to exclude the 

arrangements from required government 

price reporting metrics. The commenter 

noted this is necessary to incentivize 

broader adoption of VBP arrangements. 

Another commenter expressed their 

belief that that it is essential to exclude 

drugs purchased through VBPs from 

ASP determinations. Commenters 

expressed concern that outcomes-based 

price discounts made for VBP 

arrangements could lower the Medicare 

Part B Drug ASP, reducing ASP-based 

reimbursements to providers or 

pharmacies that purchase the drug 

therapy. The commenters noted that 


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discounts under VBP arrangements are 

granted to payers while providers and 

pharmacies would experience reduced 

revenue. 

Another commenter requested CMS 

address the uncertainty VBP 

arrangements may have on 340B ceiling 

prices, as well as AMP. Another 

commenter requested that CMS consider 

the scope of the discounts that could be 

included in a bundled sale under the 

proposed change and what the impact 

would be on Medicaid rebates and, by 

extension, the 340B program. 

Response: While this regulation 

allows manufacturers to report multiple 

best prices associated with their VBP 

arrangements, manufacturers will 

continue to be required to report a best 

price for each dosage form and strength 

of a drug paid for outside of the VBP 

arrangement (non-VBP best price). 

Therefore, the 340B ceiling price will 

continue to reflect a Medicaid drug 

rebate based upon the non-VBP best 

price. 

Also, while we do not anticipate that 

this rule will reduce a drug’s AMP, 

manufacturers should also consider the 

effects of their VBP arrangements on 

payment amounts that are determined 

for use in other parts of Medicare, for 

example the effects of VBP 

arrangements on AMP if AMP is used to 

determine payment allowance for a drug 

in Part B as authorized in section 

1847A(d) of the Act. 

In consideration of comments 

received, specifically those comments 

that requested clarification regarding the 

manufacturer’s allowance to report 

multiple best prices, we are revising the 

definition of best price at § 447.505(a) to 

state that if a manufacturer offers a 

value based purchasing arrangement (as 

defined at § 447.502) 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 value based 

purchasing arrangement. However, in 

order to address the operational and 

administrative challenges facing CMS, 

states, and manufacturers, as noted in 

the comments, we are delaying the 

effective date of this final policy at 

§ 447.505(a) such that the revised 

definition of best price to permit 

multiple best price reporting will not be 

effective until January 1, 2022. 

C. Changes to Update Definitions in 

§ 447.502 To Reflect Recent Statutory 

Changes Made by the MSIAA, BBA 2018 

and the Affordable Care Act 

1. Innovator Multiple Source Drug 

The MSIAA clarified the definition of 

innovator multiple source drug at 

section 1927(k) of the Act by removing 

the phrase ‘‘an original new drug 

application’’ and inserting ‘‘a new drug 

application,’’ removing ‘‘was originally 

marketed’’ and inserting ‘‘is marketed,’’ 

and inserting, ‘‘, unless the Secretary 

determines that a narrow exception 

applies (as described in § 447.502, Code 

of Federal Regulations (or any successor 

regulation))’’ before the period. Section 

1927(k)(7)(A)(ii) of the Act now defines 

innovator multiple source drug to mean 

a multiple source drug that is marketed 

under a NDA approved by the FDA, 

unless the Secretary determines that a 

narrow exception applies (as described 

in § 447.502 (or any successor 

regulation)). To align the regulatory 

definition with the definition in the 

statute, as clarified by the MSIAA, we 

proposed to define innovator multiple 

source drug in § 447.502 as a multiple 

source drug, including an authorized 

generic drug, that is marketed under a 

NDA approved by FDA, unless the 

Secretary determines that a narrow 

exception applies (as described in the 

section). We noted that the proposal 

also included a drug product marketed 

by any cross-licensed producers, 

labelers, or distributors operating under 

the NDA and a COD approved under a 

biologics license application (BLA), 

product license application (PLA), 

establishment license application (ELA) 

or antibiotic drug application (ADA). 

We have received the following 

comments regarding the proposed 

definition of innovator multiple source 

drug: 

a. Prospective Application 

Comment: One commenter requested 

that CMS revise their proposed 

definition of innovator multiple source 

drug to only apply prospectively from 

October 2019 forward, citing their belief 

that since this is the date the Congress 

amended the MDRP statute, it would be 

in accordance with the recent ruling in 

the United States District Court for the 

District of Columbia case of STI 

Pharma, LLC v. Azar. 

Response: The revision to the 

definition of innovator multiple source 

drug is to conform the rule with the 

amended statute. Our longstanding 

interpretation of the statute (both before 

and after the 2019 amendments) is that 

an innovator multiple source drug is a 

drug approved under an NDA, and 

noninnovator drugs are those approved 

under an ANDA. We believe STI 

Pharma, LLC v. Azar was wrongly 

decided. Prior to the 2016 COD final 

rule, there was no narrow exception to 

that general rule. Therefore, any drug 

approved under an NDA that is reported 

as a noninnovator multiple source drug 

for quarters prior to 2Q2016 is 

improperly categorized and the drug 

manufacturer should request a drugcategory change or risk enforcement 

action. 

b. Narrow Exception 

Comment: One commenter 

recommended that CMS maintain and 

codify the current factors used to 

determine if a product meets the narrow 

exception citing their belief that this 

would provide clarity to both current 

and future manufacturers, helping to 

ensure these products are available and 

do not go into shortage, and therefore, 

are available to the patients who need 

them. 

Response: We do not agree that we 

should codify the factors used to 

determine if a drug qualifies for a 

narrow exception to the rule that drugs 

marketed under an NDA should be 

reported to us as a single source drug or 

an innovator multiple source drug. Each 

request for a narrow exception is 

evaluated individually and we consider 

many factors in determining whether to 

use our discretion to grant such an 

exception. When reviewing a request for 

a narrow exception, we may reach out 

to the manufacturer to request 

additional information to aid in the 

review of the request, thereby ensuring 

that we are making decisions based on 

all of the information pertinent to the 

request. We are finalizing the definition 

of innovator multiple source drug as 

proposed. 

2. Line Extension, New Formulation, 

and Application of Oral Solid Dosage 

Form Requirement 

Section 1927(c)(2)(C) of the Act 

defines line extension to mean, for a 

drug, a new formulation of the drug, 

such as an extended release 

formulation, but does not include an 

abuse-deterrent formulation of the drug 

(as determined by the Secretary), 

regardless of whether such abuse 

deterrent formulation is an extended 

release formulation. As discussed in the 

June 2020 proposed rule (85 FR 37288 

through 372289), we proposed to define 

line extension in the February 2, 2012 

proposed rule, but did not finalize a 

definition in the COD final rule or the 

April 1, 2019 final rule. We reiterated in 

the April 1, 2019 final rule that 

manufacturers are to rely on the 

statutory definition of line extension at 

section 1927(c)(2)(C) of the Act, and 

where appropriate are permitted to use 

reasonable assumptions in their 

determination of whether their drug 

qualifies as a line extension (81 FR 

5265). 


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As discussed in the June 2020 

proposed rule (85 FR 37294), after 

several years of experience with 

manufacturers self-reporting their line 

extensions, and numerous inquiries 

from manufacturers regarding the 

identification of drugs as line 

extensions, we have noted 

inconsistency among manufacturers in 

their identification of drugs as line 

extensions. In addition, we expressed 

concern that manufacturers may have a 

financial incentive to be underinclusive 

in their identification of drugs as line 

extensions because a drug identified as 

a line extension may be subject to a 

higher rebate. We noted that if 

manufacturers underreport their line 

extensions, rebates may be calculated 

incorrectly and underpaid. 

To ensure that section 1927(c)(2)(C) of 

the Act is fully implemented and the 

universe of line extensions is 

comprehensively identified, we 

proposed to provide further 

interpretation of the statute in the June 

2020 proposed rule. 

Based on the definition of line 

extension that was included in the 

Affordable Care Act, we believed that 

the statute gives us discretion and 

authority to interpret the term ‘‘line 

extension’’ broadly. We expressly 

solicited comments on our proposed 

definitions of ‘‘line extension’’ and 

‘‘new formulation,’’ specifically on 

whether these terms should be 

interpreted more narrowly. Moreover, if 

commenters believed that a narrower 

interpretation is appropriate, we 

solicited comments on how to identify 

those drugs that constitute a line 

extension and a new formulation to 

apply the alternative URA calculation 

when required by statute. The 

comments we received in response to 

this solicitation are addressed in section 

II.C. of this final rule. 

In the June 2020 proposed rule (85 FR 

37294), we proposed that only the 

initial single source drug or innovator 

multiple source drug (the initial brand 

name listed drug) must be an oral solid 

dosage form. In the 2012 proposed rule 

(77 FR 5338, 5339), we proposed that 

both the initial brand name drug and the 

line extension drug had to be an oral 

solid dosage form. However, as noted in 

the June 2020 proposed rule, we did not 

finalize a regulatory definition of line 

extension, and instructed manufacturers 

to make ‘‘reasonable assumptions’’ 

regarding whether a drug is a line 

extension (81 FR 5265). The statute 

states that the alternative calculation 

must be performed in the case of a drug 

that is a line extension of a single source 

drug or an innovator multiple source 

drug that is an oral solid dosage form. 

Upon further evaluation of this statutory 

language, we believed that the statutory 

text can be reasonably construed to 

provide that only the initial single 

source drug or innovator multiple 

source drug must be an oral solid dosage 

form. We believed this interpretation is 

appropriate because the alternative 

construction (requiring both the line 

extension and the initial single source 

drug or innovator multiple source drug 

to be an oral solid dosage form) may 

inappropriately limit the universe of 

line extension drugs in a manner which 

would allow a manufacturer to 

circumvent rebate liability when 

creating a line extension and to 

potentially avoid inflation-based 

additional rebates, in cases where such 

rebates should apply. Therefore, we 

proposed that when determining 

whether a drug is a line extension, only 

the initial single source drug or 

innovator multiple source drug must be 

an oral solid dosage form. That is, we 

proposed that the line extension of the 

initial brand name listed drug does not 

need to be an oral solid dosage form. We 

believed this is consistent with the 

statutory language and will assist in 

appropriately identifying drugs that may 

be line extension drugs. Therefore, we 

proposed to amend § 447.509(a)(4)(i) 

and (ii) to refer to ‘‘a drug that is a line 

extension of a single source drug or an 

innovator multiple source drug 

provided that the initial single source 

drug or innovator multiple source drug 

is an oral solid dosage form,’’ and 

§ 447.509(a)(4)(i)(A) and (a)(4)(ii)(A) to 

refer to ‘‘a single source drug or an 

innovator multiple source drug’’ in the 

regulatory text that describes the 

alternative rebate calculation. 

We received the following comments 

regarding our proposal that when 

determining whether a drug is a line 

extension, only the initial single source 

drug or innovator multiple source drug 

must be an oral solid dosage form: 

Comment: A few commenters 

disagreed with the proposal to require 

that only the initial single source drug 

or innovator multiple source drug be an 

oral solid dosage form when 

determining whether a drug is a line 

extension because they claim the 

proposal does not align with 

Congressional intent. They stated that 

the legislative history shows that 

Congress intended that the line 

extension provision applies only to 

drugs that were ‘‘slight alterations’’ of 

the previous drug, and that a change 

from an oral solid dosage form to a 

different dosage form is a significant 

alteration. A few commenters stated that 

if the change requires submission of 

clinical data to FDA, it would be a 

significant alteration. Some 

commenters, in discussing fixed-dose 

combination tablets in treating diseases 

such as HIV, noted that innovations that 

improve patient compliance provide 

significant improvements that benefit 

patients. 

Response: We believe that our 

proposal is consistent with section 

1927(c)(2)(C) of the Act. Additionally, 

the statute does not require that in order 

for a drug to be a line extension, the 

change to a drug must be a slight 

alteration. Had Congress intended to 

limit the definition of line extension to 

only those drugs for which a slight 

alteration had been made, we believe 

they would have included that 

requirement in the statute. Notably, the 

example of a new formulation that 

Congress provided in the statute is ‘‘an 

extended release formulation.’’ The 

change from an immediate release 

formulation to an extended release 

formulation may be considered more 

than a slight alteration. We agree with 

commenters that innovations that 

improve patient compliance provide 

significant improvements that benefit 

patients and believe this may include 

extended release formulations. Had 

Congress intended to limit the line 

extension provisions to drugs that were 

only slight alterations, we believe they 

would have provided an example of a 

less significant change than ‘‘an 

extended release formulation.’’ 

Comment: A few commenters stated 

that requiring that only the original 

single source drug or innovator multiple 

source drug be an oral solid dosage does 

not align with the statute. One 

commenter stated that in the statutory 

language, in the case of a drug that is a 

line extension of a single source drug or 

an innovator multiple source drug that 

is an oral solid dosage form, Congress 

plainly intended for the phrase ‘‘that is 

an oral solid dosage form’’ to modify the 

term ‘‘line extension.’’ They stated that 

because Congress directly addressed 

this issue, the agency lacks discretion to 

define ‘‘line extensions’’ to include 

products that are not oral solid dosage 

forms. 

Response: As stated in the June 2020 

proposed rule, we believe that the 

statutory text can be reasonably 

construed to provide that only the 

initial single source drug or innovator 

multiple source drug must be an oral 

solid dosage. We disagree that the 

statutory language clearly indicated that 

the phrase ‘‘that is an oral solid dosage 

form’’ modifies the term ‘‘line 

extension.’’ Although the structure of 

the sentence does not make it clear 

which subject is modified by ‘‘that is an 

oral solid dosage form,’’ we believe that 


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the better reading is that the phrase 

modifies ‘‘a single source drug or an 

innovator multiple source drug’’ 

because it appears directly following 

that subject. 

Comment: A few commenters stated 

that the proposal to require that only the 

original single source drug or innovator 

multiple source drug be an oral solid 

dosage form is contrary to prior 

guidance and that the existing 

interpretation is more reasonable and 

should be retained. Several commenters 

agreed with CMS’ proposal that the line 

extension of the initial brand name 

listed drug does not need to be an oral 

solid dosage form. A few commenters 

noted that these definition clarifications 

will expand the universe of drugs that 

can be line extensions. One commenter 

noted that requiring that only the initial 

drug must be an oral solid dosage form 

would prevent manufacturers from 

switching forms to avoid higher 

inflation-related rebates. 

Response: We do not agree that our 

proposal is less reasonable than the 

interpretation we discussed in the COD 

final rule. We acknowledge that in the 

February 2, 2012 proposed rule, we 

proposed that both the initial brand 

name listed drug and the drug that is a 

line extension were required to be an 

oral solid dosage form in order for the 

alternative rebate calculation to be 

required. However, that proposal was 

not finalized in the COD final rule. 

Instead, we stated that we will continue 

to consider the issues and may consider 

addressing the issues in future 

rulemaking (81 FR 5265). We are doing 

so in this final rule. 

After consideration of public 

comments, we are finalizing our 

proposal that only the initial single 

source drug or innovator multiple 

source drug be an oral solid dosage form 

when determining whether a drug is a 

line extension. While we initially 

proposed amending § 447.509(a)(4)(i) 

and (ii), we are making a technical 

change to that proposal to more 

accurately reflect the prospective 

applicability of the revised policy. In 

addition, as discussed in section II.C. of 

this final rule, we are finalizing that the 

definitions of line extension, new 

formulation, and oral solid dosage form, 

as well as the requirement that only the 

initial brand name listed drug must be 

an oral solid dosage form, are effective 

beginning on January 1, 2022. For prior 

periods, manufacturers should continue 

to rely on the statutory definition of line 

extension and may continue to make 

reasonable assumptions to determine 

whether their drug is a line extension. 

We are amending § 447.509(a)(4)(ii) to 

change ‘‘beginning on or after October 1, 

2018’’ to ‘‘beginning on October 1, 2019 

through December 31, 2021’’, 

redesignating § 447.509(a)(4)(iii) as 

§ 447.509(a)(4)(iv) and adding 

§ 447.509(a)(4)(iii). 

3. Definition of Line Extension 

In response to requests to provide 

more specific guidance on how to 

identify a line extension drug, we 

proposed to define ‘‘line extension’’ and 

‘‘new formulation’’ at § 447.502. 

Specifically, we proposed that as 

provided in section 1927(c)(2)(C) of the 

Act, the term ‘‘line extension’’ means, 

for a drug, a new formulation of the 

drug, but does not include an abusedeterrent formulation of the drug (as 

determined by the Secretary). 

Most of the comments we received 

regarding our proposed definition of 

‘‘line extension’’ more accurately 

pertain to our proposed definition of 

‘‘new formulation,’’ and therefore, we 

will discuss those comments in section 

II.C.4. of this final rule. We received the 

following comment regarding our 

proposed definition of ‘‘line extension’’: 

Comment: One commenter supported 

CMS’ proposal to exclude abusedeterrent formulations from the 

proposed definition of line extension, 

citing their belief that this exclusion 

aligns with the Administration’s public 

health goals, as well as other efforts to 

reduce rates of opioid abuse in 

communities. 

Response: We thank the commenter 

for the support and note that section 

1927(c)(2)(C) of the Act requires that we 

exclude abuse deterrent formulations 

from the definition of ‘‘line extension’’. 

After consideration of public 

comments, we are finalizing the 

definition of ‘‘line extension’’ as 

proposed. In addition, as discussed in 

section II.C. of this final rule, we are 

finalizing that the definitions of line 

extension, new formulation, and oral 

solid dosage form, as well as the 

requirement that only the initial brand 

name listed drug must be an oral solid 

dosage form, are effective beginning on 

January 1, 2022. For prior periods, 

manufacturers should continue to rely 

on the statutory definition of line 

extension and may continue to make 

reasonable assumptions to determine 

whether their drug is a line extension. 

4. Definition of New Formulation 

Additionally, we proposed to define 

‘‘new formulation’’ to mean, for a drug, 

any change to the drug, provided that 

the new formulation contains at least 

one active ingredient in common with 

the initial brand name listed drug. As 

discussed in the June 2020 proposed 

rule (85 FR 37295), new formulations 

(for the purpose of determining if a drug 

is a line extension) would not include 

abuse deterrent formulations but would 

include, but would not be limited to: 

Extended release formulations; changes 

in dosage form, strength, route of 

administration, ingredients, 

pharmacodynamics, or pharmacokinetic 

properties; changes in indication 

accompanied by marketing as a 

separately identifiable drug (for 

example, a different NDC); and 

combination drugs, such as a drug that 

is a combination of two or more drugs 

or a drug that is a combination of a drug 

and a device. We requested comments 

about whether a drug approved with a 

new indication that is not separately 

identifiable should be considered a new 

formulation and, if so, how such a drug 

could be identified in DDR for purposes 

of calculating the alternative URA. 

We received the following comments 

regarding our proposed definition of 

‘‘new formulation’’. 

Comment: We received many 

comments that provided general support 

for our proposed definition of new 

formulation. Commenters noted that the 

proposed definition will help ensure 

that manufacturers identify all their 

drugs that are line extensions and will 

prevent manufacturers from 

circumventing inflation-based rebates. 

One commenter stated that the current 

ambiguity has allowed manufacturers to 

use ‘‘product hopping’’ strategies for 

financial gain and blocking generic 

competition. 

Response: We appreciate the support 

from the commenters. 

Comment: We received several 

comments generally opposing the 

proposed definition. Some commenters 

generally disagreed with any expansion 

of the definition of line extension. One 

commenter opposed any measure that 

expands rebates because it distorts 

market dynamics and pushes costs onto 

every other payer. Another commenter 

stated that CMS was proposing an 

expansive change to line extension 

policies without providing context for 

the programmatic purpose and goals for 

a substantial change in disposition 

impacting many products. One 

commenter stated that the proposed 

language is filled with inconsistencies 

that make the proposals impossible to 

operationalize. 

Response: As explained in the June 

2020 proposed rule (85 FR 37294), we 

have noted inconsistency among 

manufacturers in their identification of 

drugs as line extensions. In addition, we 

expressed concern that manufacturers 

may have a financial incentive to be 

under-inclusive in their identification of 

drugs as line extensions because they 


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may be able to avoid some of the 

inflation-based rebates they had 

incurred because of the increases in the 

price of the original drug that exceeded 

the rate of inflation. By making certain 

changes to the original drug, they were 

often able to establish a new baseline 

AMP for the line extension drug and 

essentially start fresh, without the 

burden of the inflation-based rebates on 

the original drug. By proposing a 

definition which clarifies the attributes 

of a drug that make it qualify as a line 

extension drug, we believe 

manufacturers will have a clearer 

explanation about how to identify their 

drugs that are line extensions. We 

disagree that any measure that expands 

rebates distorts market dynamics and 

pushes costs onto other payers and the 

commenter did not substantiate that 

assertion. We do not believe that that 

the definitions we are finalizing in this 

rule contain inconsistencies, and CMS 

staff is available to assist manufacturers 

with any operational questions. 

a. Statutory Concerns 

Comment: We received one comment 

stating that our proposed definition is 

grounded in statute. 

We received many comments stating 

that our proposed definition of new 

formulation exceeds statutory authority 

because it is too broad or exceeds what 

Congress authorized (that is, slight 

alterations). A few commenters stated 

that CMS exceeds reasonable statutory 

interpretation by including several 

product categories clearly not within the 

common understanding of new 

formulation. 

A few commenters stated that our use 

of the term ‘‘any change’’ is inconsistent 

with statute. They stated that because 

the statute provides an example of a 

change that is a new formulation (that 

is, an extended release formulation), 

that only a change in formulation that 

is similar to an extended release 

formulation can qualify as a line 

extension. A few commenters cited the 

principle of ejusdem generis, stating 

that per that principle, a general term 

that follows an enumerated list of more 

specific terms should be interpreted to 

cover only matters similar to those 

specified. One commenter stated that 

the subset of drugs that can be a new 

formulation must be directly tied to the 

physical formulation of the two 

products. 

Response: We disagree that our 

proposed definition of new formulation 

exceeds statutory authority or that it is 

not reasonable. The statute does not 

define new formulation and it provides 

only one example of a new formulation, 

that is, an extended release formulation. 

The example provided does not 

expressly limit the types of new 

formulations that are to be treated as 

line extensions; rather, using the term 

‘‘such as,’’ Congress provided one 

example of a new formulation. Had 

Congress intended to limit the 

definition to certain types of changes to 

a drug, it could have done so in the 

statute. 

Regarding our proposed use of the 

phrase ‘‘any change’’, that phrase was 

followed by specific inclusions and 

exclusions so that the final definition 

did not state that any change to a drug 

qualified the drug as a new formulation. 

However, the definition we are 

finalizing in this rule does not contain 

that phrase. 

We disagree that the principle of 

ejusdem generis applies because 

Congress did not provide a list of types 

of changes to a drug that should be 

considered a new formulation. Had they 

provided a list of changes to a drug that 

all had similar attributes, then it 

possibly could be interpreted that a new 

formulation must have a similar 

attribute to the types of changes in that 

list. Additionally, the general term (new 

formulation) precedes the more specific 

term (extended release formulation), 

further indicating that ejusdem generis 

is not applicable here. We do not 

believe that the language Congress 

selected limits the definition of new 

formulation to include only an extended 

release formulation of the original drug 

or a change that is closely related to an 

extended release formulation. Congress 

merely provided one example of a new 

formulation, that is, an extended release 

formulation. 

b. Congressional Intent 

Comment: A few commenters stated 

the proposed definition of new 

formulation is consistent with the intent 

of Congress. One commenter stated that 

the intent was to provide protection to 

taxpayers from drug company pricing 

practices which are the primary factors 

in spending increases and that the 

proposed definition furthered that 

intent. Another commenter stated that if 

Congress wanted a more limited 

definition, it would have included that 

in the statute; however, it left the 

interpretation to the Administration. 

The commenter noted that committee 

reports show that Congress knew there 

were multiple ways that a drug could be 

modified to avoid additional rebate 

obligations. 

Response: We thank those 

commenters who agreed that our 

proposed definition is not contrary to 

Congressional intent. We believe that 

our proposal is consistent with section 

1927(c)(2)(C) of the Act. We do not 

believe that the modification has to have 

been made for the purpose of avoiding 

inflation-based rebates. Rather, the 

alternative rebate calculation would 

result in a unit rebate amount that is 

higher than the standard unit rebate 

amount when price increases of the 

initial brand name listed drug exceed 

the rate of inflation regardless of the 

reason for the modification. 

Comment: Many commenters stated 

that the proposed definition disregards 

the intent of Congress and the legislative 

history. Commenters stated that 

Congressional intent was to capture 

slight alterations of existing drugs and 

the legislative history mandates a 

narrow reading of the statute. One 

commenter stated that the legislative 

history makes it clear that a new 

formulation is only a slight alteration in 

an existing drug where no additional 

studies are required by FDA but the 

proposed definition captures more than 

slight alterations. Commenters stated 

that Congress did not intend to include 

innovative products and new 

formulations that provide significant 

benefits to patients in the definition of 

line extension. One commenter stated 

that even after CMS recognized that 

many combination drugs are not slight 

alterations, we nonetheless included 

them in the proposed definition. 

Response: We disagree that our 

proposed definition exceeds what 

Congress intended in the line extension 

provisions. We are aware that there have 

been discussions about slight alterations 

made to a drug and those alterations 

permitted a manufacturer to mitigate the 

effect of inflation-base rebates on the 

original drug, however, Congress chose 

not to include that language, or any 

similar language, when constructing the 

statutory language. Additionally, 

Congress did choose to include an 

example of one change that is a new 

formulation. The example given is an 

extended release formulation, which in 

general is a change to a drug for which 

FDA requires additional studies and 

may be considered a significant change 

to an original drug. Had Congress 

intended that the change be slight in 

order to be considered a new 

formulation, it could have stated so. The 

change from an immediate release drug 

to an extended release drug is not a 

slight change; there may be significantly 

different technology involved. 

Therefore, as Congress had considered 

slight alterations to a drug in their 

discussions of line extensions, but chose 

not to include that limitation in statute, 

and, as Congress ultimately included a 

more complex change (that is, an 

extended release formulation) as an 


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example of a new formulation, we 

believe that section 1927(c)(2)(C) of the 

Act is not limited to only slight 

alterations. 

Similarly, Congress could have 

included language that excluded new 

formulations that were innovative or 

provided significant benefits to patients. 

However, not only was such language 

not included in the statute, but the only 

example of a new formulation that was 

provided (that is, extended release 

formulation) can provide significant 

benefits to patients. 

c. Prior Guidance 

Comment: Several commenters 

pointed out that some parts of the 

proposed definition of new formulation 

conflicts with prior guidance. One 

commenter stated that prior guidance 

provided that both the original drug and 

the line extension drug must be an oral 

solid dosage form for the application of 

the alternative rebate formula to be 

required and that manufacturers have 

been relying on that guidance for a long 

time. The commenter stated that the 

prior guidance is reasonable and 

appropriate. 

Several commenters noted that in the 

COD final rule, CMS stated that a new 

strength is not a line extension and 

provided rationale that the statute did 

not contemplate that it is. A few stated 

that our reversal of that position is being 

done without adequate justification and 

is arbitrary and capricious. 

A few commenters stated that prior 

guidance instructed manufacturers to 

rely on the statutory definition to 

determine if a drug is a line extension 

and that they may use reasonable 

assumptions to make that 

determination. 

Response: In the COD final rule, we 

advised that we were not finalizing a 

definition of line extension at that time 

and we reiterated that manufacturers are 

to rely on the statutory definition of line 

extension and where appropriate are 

permitted to use reasonable 

assumptions in their determination of 

whether their drug qualifies as a line 

extension drug. We also stated that if we 

later decide to develop a regulatory 

definition of line extension drug, we 

will do so through our established 

Administrative Procedures Act 

compliant process and issue a proposed 

rule. We have done so by issuing the 

June 2020 proposed rule and this final 

rule. We have 10 years’ experience with 

various aspects of the line extension 

provisions that were enacted in the 

Affordable Care Act and are using our 

experience to develop a definition of 

new formulation that we believe is 

supported by the statute, and supports 

the MDRP. We do not believe that any 

changes we have made to prior guidance 

conflict with the statute or are 

unreasonable or unjustified in light of 

the proposed changes. 

d. Effect on Patients 

Comment: We received many 

comments that the proposed definition 

of new formulation would negatively 

affect patients. Several commenters 

stated that patients might be denied 

access to drugs that are line extensions, 

as designating some of these new drugs 

as line extensions might create 

disincentives for manufacturers to 

develop such new formulations. Several 

commenters stated that the proposals 

will cause states to change their 

preferred drugs list which will cause 

changes in patients’ drug regimen, 

resulting in increased medical and drug 

expenditures due to health 

consequences of medication changes. 

Some commenters stated that 

manufacturers would be less likely to 

make drugs that would be subject to the 

alternative rebate calculation, thereby 

decreasing patients’ access to innovative 

drugs that may benefit them in terms of 

compliance or side effects. Some 

commenters stated that this would lead 

to poorer health outcomes. One 

commenter stated that the broad 

definition would impact its ability to 

provide discounts outside of the 

Medicaid program that aid patients in 

other safety-net programs. 

Response: We do not agree with the 

commenters who stated that patients 

would be harmed because 

manufacturers will not have incentive to 

research and develop innovative 

alternatives that may be considered new 

formulations and therefore subject to the 

alternative rebate calculation. Based 

upon the comments received in 

response to the proposed definition of 

line extension and new formulation, the 

definition was further refined to limit 

the scope of drugs that are new 

formulations and thereby subject to the 

alternative rebate calculation. Because 

we are not finalizing that certain 

changes to a drug result in a new 

formulation, as described later, there is 

a significantly smaller universe of drugs 

that will be subject to the alternative 

rebate calculation. We believe that with 

the exclusion of these proposed changes 

from the final definition of line 

extension, that we have maintained 

incentives for manufacturers to bring 

such advances to the market. 

Market forces and competition may 

help determine whether such new 

formulations are in fact significant 

clinical advances, given that payers are 

likely to impose utilization restrictions 

around their use if they are not. 

Manufacturers’ decisions regarding 

those drugs to research and market 

depend on multiple factors, including 

clinical significance of the drug, 

prescriber and patient demand, costs of 

research and development, and possible 

revenues generated. Whether the drug is 

a line extension, which could subject it 

to the alternative rebate calculation, is 

only one factor in these decisions. The 

financial effect of the alternative rebate 

calculation would only be applicable in 

the Medicaid program, and the new 

drug may have only limited use in 

Medicaid. For these and other reasons, 

we believe that it will continue to be in 

the interest of a manufacturer to 

broaden the use of its existing drugs in 

the form of line extensions, which will 

lead to increased revenue for the 

manufacturer. 

For those drugs that have a broader 

use in Medicaid, such as HIV 

combination drugs, we note that we 

have decided at this time not to include 

new combinations in the final 

regulatory definition of new 

formulation. We also point out again, 

that the development of a new 

formulation does not automatically 

mean that a manufacturer will be 

penalized by the alternative rebate 

calculation for marketing that new 

formulation. There would only be an 

alternative inflation penalty on the new 

formulation to the extent that the 

increase in price on the initial drug was 

greater than inflation. Thus, 

manufacturers that have excessively 

inflated the price of their older existing 

drugs, and attempt to market a new 

formulation to avoid paying inflation 

penalties on those older existing drugs, 

may have to pay the alternative inflation 

penalty on the new formulation. The 

possibility of paying this penalty would 

be one consideration that manufacturers 

would have to take into account when 

developing a new formulation of an 

existing oral solid drug, but any increase 

that they would have to pay over the 

standard rebate amount would be a 

result of an increase in prices faster than 

inflation on these drugs. 

We believe that the existence of the 

alternative inflation calculation 

requirement can also help serve the 

interests of the broader population with 

respect to drug pricing. A manufacturer 

that knows that an intended new 

formulation could be subject to an 

alternative inflation penalty if it 

excessively inflates the price of its 

initial oral solid drug, could limit price 

increases on the initial drug. 

We understand that states may wish 

to reevaluate their preferred drug lists if 

manufacturers alter their existing state 


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supplemental rebate agreements. 

However, we understand that such 

reevaluation by states occurs on a 

regular basis, as it does with nonMedicaid insurers. We are confident 

that state Medicaid programs can 

continue to effectively manage shifting 

preferred drug lists and provide 

appropriate, cost-effective therapies to 

their beneficiaries as they have been 

doing. As a result of possible potential 

increases in the net cost of drugs that 

are line extensions to a state due to loss 

of rebates, the state may prefer a drug 

that is not a line extension. However, 

per section 1927(d)(4)(D) of the Act, the 

state plan is required to cover a nonpreferred drug pursuant to a prior 

authorization program that is consistent 

with section 1927(d)(5) of the Act. 

e. Effect on Innovation 

Comment: We received many 

comments addressing the effect that the 

proposed definition of new formulation 

will have on innovation. A few 

commenters stated that they believed 

the broad definition would be unlikely 

to have a negative effect on innovation. 

A few commenters stated that the 

proposed definition would encourage 

‘‘true innovation’’ and discourage 

manufacturer’s incentive to ‘‘product 

hop’’ or to seek approval for so-called 

‘‘me too’’ or patent-extending 

formulations. 

We received many comments 

discussing that the proposed definition 

will have a negative effect on innovation 

by discouraging, disincentivizing or 

penalizing innovation. In addition, one 

commenter stated that CMS should not 

disrupt the innovation cycle that allows 

manufacturers to take on the challenges 

of innovation. One commenter stated 

that the proposed definition could make 

innovation financially untenable for 

manufacturers. Several commenters 

discussed that reducing incentives for 

innovation, research and development, 

which are long-term, high-risk and 

expensive investments, will affect 

clinical outcomes. A few commenters 

expressed concern that the proposed 

definition will stifle the development of 

new and innovative therapies with 

particular concern for drugs that treat 

rare diseases. One commenter stated 

that the proposed definition distorts 

incentives to innovate because new 

active ingredients would be incented 

over other changes, even though new 

uses, dosage forms, and combination 

drugs require significant innovation and 

may lead to important advancements. 

Several commenters stated that the 

proposed definition undermines, or is 

inconsistent with FDA policies and 

incentives that encourage innovation. 

One commenter stated that the 

proposed definition of new formulation 

will result in higher rebates for drugs 

that are line extensions and because of 

the higher rebates, 340B prices will be 

decreased. They stated that lower 340B 

prices will lead to less incentive for 

manufacturers to invest in research and 

development. 

Response: We disagree that the 

definition of new formulation penalizes 

innovation. If the alternative calculation 

for a drug that is a line extension results 

in a higher URA than the standard 

rebate calculation, it is because the 

original drug was subject to inflationbased penalties. Therefore, the most 

important variable that determines if the 

applicable URA is based on the 

alternative rebate calculation, rather 

than the standard calculation, is 

whether the original drug increased 

faster than the rate of inflation. The 

perceived ‘‘penalty’’ for a drug that is a 

line extension is not a penalty on the 

new drug, rather it is a continuation of 

the ‘‘penalty’’ on the original drug. We 

agree that the treatment of a line 

extension drug may result in a URA that 

is greater than the standard rebate 

amount, however we do not believe that 

this treatment would prevent a 

manufacturer from pursuing innovation. 

The fact that the innovation may lead to 

a higher rebate obligation for a drug that 

is a line extension is not the result of the 

innovation. Manufacturers will continue 

to have incentives to innovate based on 

multiple factors, as noted in the 

previous response to a comment. In 

addition to previously described factors, 

we understand various FDA policies 

encourage innovation. We do not 

believe the proposed definition of new 

formulation changes those FDA policies 

and incentives. 

Regarding the comments that 

Medicaid rebates will increase and 340B 

prices will decrease, it is important to 

note that the alternative calculation 

does not categorically result in a higher 

URA for a drug, as there are many 

factors that enter into the calculation. 

One of the most important factors in the 

calculation is the inflation-based rebate 

that is applied to the initial brand name 

listed drug for the rebate quarter being 

calculated. Regardless of the price of the 

new formulation, if the initial brand 

name listed drug did not increase in 

price in excess of the rate of inflation, 

then the alternative rebate calculation 

for the line extension should not result 

in a higher URA than the standard 

calculation for the drug that is a line 

extension. However, even in the event 

that the definition of new formulation 

results in a decrease to a 340B price, we 

believe our proposed definition is 

consistent with section 1927(c)(2)(C) of 

the Act. We do not believe that 

decreases in 340B prices will lead to 

less research and development for same 

reason that we believe that URA 

increases will not lead to less 

innovation. 

f. Effect on Manufacturers 

Comment: A few commenters 

described the negative effects that the 

proposed definition of new formulation 

will have on manufacturers. A few 

commenters stated that the proposal 

would reduce revenue for 

manufacturers, including decrease 

revenue due to reduction in 340B 

prices. One commenter stated that the 

proposed definition is unnecessarily 

burdensome on manufacturers. One 

commenter stated that the proposed 

definition will cause manufacturers to 

use existing rebates from the original 

drug that could be years old. 

Response: Applying the alternative 

rebate calculation should not 

categorically lead to decreased revenue 

for a manufacturer; rather, it continues 

to apply the inflation-based rebate that 

applies to the initial brand name listed 

drug. The alternative rebate calculation 

limits the ability of a manufacturer to 

negate those inflation-based rebates. We 

understand that if the alternative rebate 

calculation leads to a URA that is higher 

than the standard URA for a new 

formulation, a manufacturer may not 

ultimately attain the same revenue as if 

the alternative rebate calculation was 

not required. However, by interpreting 

the statutory definition, and providing 

this clarification to manufacturers, we 

are assisting manufacturers in ensuring 

their compliance with section 

1927(c)(2)(C) of the Act. 

g. Effect on States 

Comment: A few commenters pointed 

out that any increase in rebates due to 

the alternative rebate calculation for 

drugs that are line extensions are offset 

to the federal government. The 

commenters stated that states would 

likely suffer a loss because of the offset 

and because manufacturers that were 

providing supplemental rebates to the 

states for these drugs would likely 

discontinue those supplemental rebates. 

Commenters stated that this change in 

supplemental rebates would lead to the 

states having to reevaluate their 

preferred drug lists to ensure that 

preferred drugs are most cost-effective. 

One commenter noted that if the 

definition was enacted retroactively, it 

would create an administrative burden 

for the states and that states would owe 

money to CMS back to 2011. 


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Response: The statute provides that 

any increase in rebates resulting from 

the alternative calculation for drugs that 

are line extensions are to be treated as 

an offset to federal financial 

participation provided to a state as 

specified at section 1927(b)(1)(C) of the 

Act. We understand that states may 

wish to reevaluate their preferred drug 

lists if manufacturers alter their existing 

state supplemental rebate agreements. 

However, we understand that such 

reevaluation by states occurs on a 

regular basis, as it does with nonMedicaid insurers. We are confident 

that state Medicaid programs can 

continue to effectively manage shifting 

preferred drug lists and provide 

appropriate, cost-effective therapies to 

their beneficiaries as they have been 

doing. 

The definitions of line extension, new 

formulation, and oral solid dosage form 

being finalized in this rule will be 

effective beginning on January 1, 2022 

and will therefore not result in states 

owing money to CMS for retrospective 

application. 

h. Recognizing Benefits of New 

Formulations 

Comment: A few commenters stated 

that the proposed definition of new 

formulation fails to take into account 

the value of improvements and 

innovation. One commenter stated that 

the policy explicitly fails to differentiate 

between innovation and nonsubstantive formulation changes. A few 

commenters stated that CMS fails to 

recognize the effort and expense that go 

into developing new formulations and 

combinations drugs. 

Response: We do not believe that the 

statute requires that the treatment of a 

drug that is a line extension is 

dependent on the extent of the 

improvements, the value of the 

innovation, or the expense that 

manufacturers incur when developing 

new formulations. If Congress had 

intended these factors to limit the scope 

of drugs that are line extensions, it 

would have provided as much in 

statute. While CMS recognizes the value 

of innovation and improvements, we 

also recognize the importance of giving 

full effect to the statute. 

i. New Combination Drugs and Drug/ 

Device Combinations 

The statutory definition of line 

extension does not expressly exclude 

new combination drugs, such as a drug 

that is a combination of two or more 

drugs or a drug that is a combination of 

a drug and a device, and, as noted in the 

June 2020 proposed rule (85 FR 37295), 

our proposed definition of new 

formulation includes new combination 

drugs provided that the new 

formulation contains at least one active 

ingredient in common with the initial 

brand name listed drug. It also provided 

that a drug/device combination is a new 

formulation. 

As noted in the COD final rule (81 FR 

5197, 5265 through 5267), we received 

numerous comments regarding our 

proposal in the February 2, 2012 

proposed rule to include combination 

drugs in the definition of line extension. 

In particular, commenters were 

concerned that our proposal required 

sharing of proprietary pricing 

information with competitors. We 

believed that the commenters’ concerns 

have been mitigated by 

§ 447.509(a)(4)(iii), which requires the 

additional rebate to be calculated only 

if the manufacturer of the line extension 

also manufactures the initial brand 

name listed drug or has a corporate 

relationship with the manufacturer of 

the initial brand name listed drug. 

Therefore, in the June 2020 proposed 

rule, we clarified that while our 

proposed definition of new formulation 

includes combination drugs, the 

alternative URA calculation is only 

required under § 447.509(a)(4)(iii) for a 

rebate period if the manufacturer of the 

line extension also manufactures the 

initial brand name listed drug or has a 

corporate relationship with the 

manufacturer of the initial brand name 

listed drug. 

Furthermore, we noted that in the 

event that the initial brand name listed 

drug is a combination drug, neither the 

statutory definition of line extension nor 

our proposed definitions of line 

extension or new formulation exclude 

new formulations of combination drugs. 

For example, if an initial brand name 

listed drug is a combination drug 

consisting of an approved drug plus a 

new molecular entity, and FDA 

subsequently approves a new drug 

consisting only of the new molecular 

entity, then we would consider the new 

drug to be a new formulation of the 

initial brand name listed drug because 

it would constitute a change to the 

initial brand name listed drug and 

contains at least one active ingredient in 

common with the initial brand name 

listed drug. 

As previously stated, we believed we 

have the discretion and authority to 

include a broad range of drugs as a line 

extension, including combination drugs. 

However, we also noted that we are 

aware that some combination drugs 

appear to be slightly different from an 

existing drug while other combination 

drugs are very different drugs than the 

initial brand name listed drug. For 

example, if a new combination drug 

contains a new molecular entity in 

combination with a previously 

approved drug, the resultant new 

combination may appear to be very 

different from the initial brand name 

listed drug, however, we believed that it 

is a new formulation of an initial brand 

name listed drug. Conversely, we 

believed that a new combination of two 

previously approved drugs, or a 

combination of a previously approved 

drug and a non-drug product (for 

example, a dietary supplement or a 

device), may not be a significant 

alteration even though it also is a new 

formulation of an initial brand name 

listed drug. Given that different 

commenters have differing thoughts on 

what constitutes a new formulation of 

an initial brand name listed drug, and 

our attempt to provide a reasonable 

interpretation of the statute to define or 

describe what constitutes a change that 

should be considered a new 

formulation, we solicited comments that 

may provide a way to define and 

identify those combination drugs that 

should be identified as line extensions 

while excluding those combination 

drugs that should not be so identified. 

We did not receive any comments 

specific to our solicitation regarding a 

method to differentiate between 

combination drugs that should be 

identified as line extensions while 

excluding those that should not be so 

identified. However, we received the 

following comments regarding our 

proposal to include a drug that is a new 

combination in the definition of new 

formulation: 

Comment: A few commenters 

supported CMS’ proposal to include 

combination drugs in the proposed 

definition of line extension citing their 

belief that the proposal could 

incentivize investment in new drug 

development rather than less innovative 

changes and is not expressly excluded 

by statutory language. One commenter 

encouraged CMS to recognize as line 

extensions all combination drugs that 

include a previously approved drug 

citing their belief that this would ensure 

that the Medicaid program is not unduly 

harmed by manufacturers’ choices in 

product life cycle management. 

Many commenters disagreed with 

CMS’ proposal to include combination 

drugs in the proposed definition of line 

extension citing their belief that it is 

contrary to Congressional intent, FDA 

policies, and statute, minimizes the 

significant advancements represented 

by combination drugs, undermines 

clinical breakthroughs/innovations, 

especially in the HIV treatment arena, 

and could be difficult to implement. 


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19An NDC comprises three segments. The first 

segment is a labeler code, associated with the 

labeler, the second segment is a product code, 

which in association with a specific labeler code 

identifies the product, and the third segment is a 

package code, which, in association with the 

preceding segments, identifies the package size and 

type. For purposes of reporting to the MDRP, FDA’s 

10-digit NDC must be converted to an 11-digit NDC. 

The 9-digit NDC cited here is a combination of the 

labeler code plus the product code. FDA 

requirements for an NDC are at 21 CFR 207.33. 

One commenter noted that CMS 

proposes to include certain combination 

drugs despite the fact that these 

products may offer a treatment for a 

novel patient population or even 

include a new molecular entity. Another 

commenter noted the proposal is 

unreasonable, stating that it is 

impossible to apply the alternative URA 

formula to combination products. One 

commenter stated that subjecting 

combination drugs to the alternative 

rebate calculation will have unintended 

pricing consequences. Several 

commenters disagreed with CMS’ 

proposal to include combination drugs 

because they stated that the Congress 

intended the line extension rebate 

calculation to apply to a single drug as 

demonstrated by the Congress’s 

deliberate and intentional use of the 

singular form to describe each drug 

subject to the line extension drug 

provision. One commenter disagreed 

with CMS’ proposed definition of new 

formulation to include a drug that is a 

combination of a drug and a device 

citing their belief that combination 

products, which could include without 

limitation a drug/biologic active 

ingredient combined with a medical 

device, are not similar to extended 

release formulations, and therefore, 

cannot qualify as a line extension under 

the statutory definition. One commenter 

expressed concern that combination 

products currently account for 

substantial federal and supplemental 

rebates and the high federal rebates on 

the original products would severely 

weight the rebate distribution in favor of 

the federal government, causing an 

impact to states, who may in turn move 

line extension products to non-preferred 

status even if utilization is high, 

assuming comparable clinical options 

exist. 

Response: We believe that we have 

statutory authority to include new 

combination drugs and drug device 

combinations in the definition of new 

formulation; however, based on the 

comments, we have decided not to 

include a new combination of drugs, 

and a drug/device combination as a new 

formulation. 

It is important to note that 

combination drugs are not necessarily 

excluded from the definition of a new 

formulation. If an initial brand name 

listed drug is a combination of two or 

more drugs, and then a manufacturer 

begins selling a new formulation of that 

combination drug, then the new drug 

satisfies the definition of a new 

formulation and must be identified as a 

line extension. For example, consider 

two single-ingredient drugs, Alpha and 

Beta. A new combination of these two 

drugs, AlphaBeta, is not considered a 

new formulation for the purposes of the 

line extension alternative rebate 

calculation. However, a later developed 

new formulation of AlphaBeta, for 

example, AlphaBeta XR, is a new 

formulation with AlphaBeta 

representing the initial brand name 

listed drug. 

Based on the comments received, we 

will not be finalizing our proposal that 

a drug that is a new combination is 

included in the definition of new 

formulation. 

j. Active Ingredient 

Comment: A few commenters agreed 

with CMS’ proposal that ‘‘the new 

formulation contains at least one active 

ingredient in common with the initial 

brand name listed drug’’ citing their 

belief that this would allow 

manufacturers and CMS to readily 

answer the threshold question as to 

whether a product is a line extension. 

One commenter specifically supported 

CMS’s proposed use of active ingredient 

to identify a new formulation. 

A few commenters disagreed with 

CMS’ proposal that ‘‘the new 

formulation contains at least one active 

ingredient in common with the initial 

brand name listed drug’’ citing their 

belief that comparing active ingredients 

is technically complicated, the proposal 

is unworkable in practice and indicative 

of a policy that stretches beyond CMS’ 

authority. One commenter expressed 

their belief that defining ‘‘new 

formulation’’ by reference to active 

moiety would require manufacturers to 

unnecessarily expend time and 

resources in identifying original drugs, 

when doing so could be unlikely to lead 

to the application of the alternative URA 

formula. One commenter recommended 

that CMS modify the proposed 

definition of new formulation to 

expressly exclude combination products 

and clarify that a new formulation must 

contain the same one active ingredient 

in common with the original drug, not 

‘‘at least one.’’ Another commenter 

requested that CMS clarify that each 

line extension should have only a single 

original drug, which is the drug first 

approved by FDA that contains the same 

active ingredient as the line extension. 

Response: We included the proposal 

that a new formulation that contains at 

least one active ingredient in common 

with the initial brand name listed drug 

because we proposed that a drug that is 

a new combination should be identified 

as a line extension if the new 

combination contained one of the same 

active ingredients as the initial drug. We 

were using that common active 

ingredient to make the link between the 

original drug and the drug that is a new 

combination. As stated, we are not 

finalizing that new combinations are 

new formulations and therefore we are 

not finalizing that the original drug and 

the drug that is a new combination have 

an active ingredient in common. 

k. New Indication 

In the February 2, 2012 proposed rule, 

we proposed that a drug approved with 

a new indication for an already 

approved drug would be a line 

extension (77 FR 5323). We received 

several comments stating that the 

proposal was not feasible because the 

approval of a new indication for an 

already approved drug may not result in 

a different drug product and it would 

not be logical that a drug is a line 

extension of itself. Additional 

commenters noted that it is not possible 

to apply the alternative line extension 

calculation to rebate invoices for an 

NDC only for those claims that were 

prescribed the newly approved 

indication. In the June 2020 proposed 

rule, we agreed that if following the 

approval of a new indication a 

manufacturer markets its drug in such a 

way that it is not a separately 

identifiable drug product the alternative 

URA calculation would not apply. 

However, if following the approval of a 

new indication the manufacturer 

markets the drug in such a way that it 

is a separately identifiable drug product, 

we proposed that the alternative URA 

calculation would apply. Thus, as 

discussed in the June 2020 proposed 

rule, we proposed a definition of new 

formulation that included changes in 

indication accompanied by marketing as 

a separately identifiable drug (for 

example, a different NDC).19 We 

requested comments about whether a 

drug approved with a new indication 

that is not separately identifiable should 

be considered a new formulation and, if 

so, how such a drug could be identified 

in DDR for purposes of calculating the 

alternative URA. 

We believed that the Congress 

included the alternative URA 

calculation for a line extension to 

address changes to a drug that allow a 

manufacturer to avoid inflation-based 

additional rebates by establishing a new 


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market date and base date AMP for the 

drug. We noted that we agreed with the 

comments suggesting that if there is a 

change to a drug but that drug is not 

separately identifiable, then it is not 

feasible for the manufacturer to identify 

the drug as a line extension and perform 

an alternative URA calculation. 

In response to our request for 

comments about whether a drug 

approved with a new indication that is 

not separately identifiable should be 

considered a new formulation and, if so, 

how such a drug could be identified in 

DDR for purposes of calculating the 

alternative URA, we did not receive 

specific suggestions. However, we 

received one comment asking for 

clarification on what marketing 

measures, other than a different NDC, 

would qualify a drug with a new 

indication as a new formulation. We 

received the following comments 

regarding the inclusion of ‘‘new 

indication’’ in the definition of new 

formulation: 

Comment: Many commenters 

disagreed with CMS’ proposal to 

include ‘‘changes in indication 

accompanied by marketing as a 

separately identifiable drug (for 

example, a different NDC)’’ as part of 

the proposed definition for new 

formulation citing their belief that the 

proposal is overly broad, conflicts with 

Congressional intent, FDA policies, and 

CMS’ statutory authority, it would 

disincentivize manufacturers to provide 

treatment options for rare disease 

patients, the proposal does not reference 

the scope of the changes involved where 

FDA approves a new indication, could 

freeze or slow research and investment 

into orphan drug indications, and could 

adversely impact the COVID–19 

pandemic by chilling innovation. One 

commenter requested that CMS not 

consider new or expanded indications 

to treat chronic conditions such as 

psoriatic disease as a new formulation 

under the proposed ‘‘line extension’’ 

definition. One commenter expressed 

their belief that in the case of a new 

indication—the parent and child drug 

are the very same drug—and applying 

the alternative rebate formula will pose 

problems as the line extension and the 

parent drug would have the same AMP, 

and thus, the same rebate. One 

commenter expressed concern that 

obtaining approval for new indications 

of existing therapies can require 

significant investments in research and 

development, including new clinical 

studies. One commenter noted that the 

introduction of a new indication can 

have significant benefits for patients. 

Another commenter was concerned that 

when a drug is approved with a new 

indication that is not separately 

identifiable, considering it a new 

formulation would create a number of 

implications on stakeholders throughout 

the drug delivery system. One 

commenter stated that a new indication 

of a drug is not a new formulation 

because a change to the label of a drug 

to reflect a new indication does not 

change the chemical composition of a 

drug, even if the new indication is 

marketed as a ‘‘separately identifiable 

drug.’’ One commenter recommended 

that CMS limit the definition of ‘‘line 

extension’’ to those formulations that 

are not legitimately distinct products. 

A few commenters agreed with CMS’ 

proposal to include ‘‘changes in 

indication accompanied by marketing as 

a separately identifiable drug (for 

example, a different NDC)’’ as part of 

the proposed definition for new 

formulation. As stated previously, one 

commenter recommended that CMS 

clarify what marketing measures other 

than a separate NDC would qualify to 

minimize confusion between 

manufacturers and CMS. 

Response: We believe that we have 

statutory authority to include a drug 

that has been approved for a new 

indication in the definition of new 

formulation, however, based on the 

comments, we have decided not to 

include a new indication accompanied 

by marketing as a separately identifiable 

drug (for example, a different NDC) in 

the definition. 

It is important to note that drugs 

approved for a new indication 

accompanied by marketing as a 

separately identifiable drug are not 

necessarily excluded from the definition 

of a new formulation. If a drug is 

approved for a new indication and is 

marketed as a separately identifiable 

drug, and also includes one of the 

changes in formulation that qualifies a 

drug as a new formulation, then that 

drug is included in the definition of a 

new formulation. For example, if an 

initial brand name listed drug is 

approved for a new indication, assigned 

a different NDC, and marketed in a 

different dosage form than the initial 

drug, such drug is a new formulation 

subject to the alternative rebate 

calculation. 

Based on the comments received, we 

will not be finalizing our proposal that 

a change in indication accompanied by 

marketing as a separately identifiable 

drug (for example, a different NDC) is 

included in the definition of new 

formulation. 

l. New Strengths 

In the COD final rule (81 FR 5267), we 

indicated that we do not consider a new 

strength of the same formulation of the 

initial brand name listed drug to be a 

line extension because section 

1927(c)(2)(C) of the Act does not 

expressly contemplate that a new 

strength is a line extension. As noted in 

the June 2020 proposed rule though, we 

did not finalize a regulatory definition 

of line extension, and instructed 

manufacturers to make ‘‘reasonable 

assumptions’’ regarding whether a drug 

is a line extension. As noted in the June 

2020 proposed rule (85 FR 37295), we 

proposed to interpret the definition of 

line extension more broadly, which 

included proposing a much broader 

definition of new formulation. The 

statutory definition of line extension 

does not expressly exclude a new 

strength of a drug, and we believed a 

change in strength is a relatively simple 

modification to a currently marketed 

product. Furthermore, changing the 

strength of an initial brand name listed 

drug allows a manufacturer to establish 

a new base date AMP, thereby avoiding 

inflation based rebate liability, which 

may incentivize a manufacturer to 

change the strength of a drug that is 

losing its exclusivity or patent 

protection to prolong the lifecycle of the 

drug, preventing money saving generic 

substitution. Therefore, we believed that 

a new strength of a drug, produced or 

distributed at a later time than the 

initial strength(s), should be identified 

as a line extension and made subject to 

the line extension alternative URA 

calculation. Therefore, as noted in the 

June 2020 proposed rule, we proposed 

a definition of new formulation that 

included changes in strength. 

We received the following comments 

in response to including a new strength 

in the definition of new formulation: 

Comment: A few commenters agreed 

with CMS’ proposal that ‘‘a new 

strength of a drug, produced or 

distributed at a later time than the 

initial strength(s), should be identified 

as a line extension and made subject to 

the line extension alternative URA 

calculation’’ citing their belief that this 

will expand the universe of drugs that 

can be line extensions and that CMS is 

correct in its characterization of 

manufacturer product life cycle gaming 

and the unintended consequences for 

both patients and the Medicaid program 

that results from this behavior. 

Response: We appreciate the support. 

Comment: Several commenters 

disagreed with the proposal that ‘‘a new 

strength of a drug, produced or 

distributed at a later time than the 

initial strength(s), should be identified 

as a line extension and made subject to 

the line extension alternative URA 

calculation’’ citing their belief that the 


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proposal conflicts with prior CMS 

guidance, statute and Congressional 

intent. A few commenters stated that 

since CMS previously stated that they 

did not believe the statute indicated that 

a new strength was a line extension, and 

that the statute did not change, that 

CMS is making a change in policy 

without appropriate explanation. They 

noted that CMS does not provide a 

policy rationale for why a new strength 

of an existing formulation would meet 

the statutory definition for a new 

formulation. A few commenters pointed 

out that CMS stated that the statute does 

not prohibit a new strength from being 

identified as a line extension but that 

the lack of prohibition does not mean 

that it is permissible or advisable. 

Response: We believe that our 

proposed definition of new formulation 

is consistent with section 1927(c)(2)(C) 

of the Act, and that it give us discretion 

to include a new strength in the 

definition. Although in the 2016 COD 

final rule we did not include a new 

strength in the definition of line 

extension, our continued experience 

with the application of the statutory 

provisions for drugs that are line 

extensions resulted in a reevaluation of 

our prior position. 

Comment: A few commenters stated 

that the proposed definition of new 

formulation conflicts with the FFDCA 

and FDA regulatory understanding of 

‘‘formulation’’. 

Response: FDA and CMS each have 

different functions and responsibilities 

and we do not believe that the same 

terms need to be defined or interpreted 

in the same manner. We note that CMS 

and FDA may use the same terms 

differently for purposes within their 

own programs and consequently do not 

agree that the interpretation of terms 

must always be the same. Until the 

January 1, 2022 effective date of the 

definition of new formulation, 

manufacturers may continue to refer to 

the statutory definition of line extension 

and use reasonable assumptions, if 

necessary, to determine if their drug is 

a new formulation. 

Comment: A few commenters 

expressed their belief that CMS does not 

understand the patient needs and/or 

reasons that different strengths serve, 

manufacturers may be discouraged from 

taking steps that would expand patients’ 

treatment options, and manufacturers 

may be penalized for investing in and 

pursuing additional improvements to a 

drug. One commenter stated that despite 

the proposed rule’s suggestion that a 

new strength is a ‘‘simple 

modification,’’ such a change must be 

supported by data—which may require 

conducting clinical trials—and receive 

FDA approval. One commenter 

suggested that a new strength might be 

approved for a drug in connection with 

a new indication for a drug and that 

would be a significant change. 

Response: We disagree that we do not 

understand the reasons that different 

strengths may be developed. We believe 

that the introduction of a new strength 

of a drug, regardless of the reason a 

manufacturer may begin marketing such 

new strength, is a new formulation that 

is subject to the alternative rebate 

calculation. Although we understand 

there may be a variety of reasons a 

manufacturer may pursue FDA approval 

of a new strength of a drug, we do not 

believe that the reason for creating a 

new strength affects whether the new 

strength is a new formulation and 

thereby required to calculate the 

alternative rebate for a drug that is a line 

extension. 

We also do not believe that the 

requirement to perform the alternative 

rebate calculation penalizes a 

manufacturer for pursuing changes to a 

drug. If the initial strength(s) of the drug 

did not increase in price faster than the 

rate of inflation, then the alternative 

calculation for the new strength will 

generally not result in a higher rebate 

than the standard calculation. Although 

the alternative rebate calculation may 

result in a higher URA for a drug, as 

compared to the standard URA, the 

higher URA is not due to the 

innovations in the new formulation. 

Rather, if the alternative rebate 

calculation results in a URA that is 

higher than the standard calculation, it 

is because the original drug increased in 

price faster than the rate of inflation and 

therefore was subject to inflation-based 

additional rebates. 

Thus, an alternative rebate calculation 

that results in a higher rebate than the 

standard calculation is not a result of 

the improvement to the drug, but rather 

the price increases on the original drug 

that exceeded the rate of inflation. 

Comment: A few commenters stated 

that the statute was focused on a change 

in dosage form, and did not discuss a 

change in strength. A few commenters 

expressed their belief that the inclusion 

of a new strength in the definition of 

new formulation conflates the concepts 

of ‘‘strength’’ and ‘‘dosage form’’— 

concepts that the statute treats as 

distinct—in a way that is contrary to 

Congressional intent. The commenters 

point out that either a change in 

strength or a change in dosage form may 

lead to the establishment of a new base 

date AMP. They noted that since the 

line extension provision provides a 

different dosage form as an example of 

a line extension (that is, an extended 

release formulation), that only a change 

to the dosage form (that is, not a change 

in strength) qualifies a drug as a line 

extension. 

Response: We do not agree that we are 

conflating ‘‘strength’’ with ‘‘dosage 

form.’’ We agree with the commenter 

that a change in strength or a change in 

dosage form may be reason to establish 

a new base date AMP. However, the line 

extension provision in the statute does 

not rely on whether the change to a new 

formulation is a reason to establish a 

new base date AMP, nor does it 

preclude considerations of changes in 

strength. 

Comment: Several commenters 

expressed concern with operational 

challenges if a new strength could be a 

line extension. They stated that since 

one of the variables in the alternative 

rebate calculation was subject to any 

strength of the original drug, the 

calculation is difficult, illogical, or 

impossible. 

Response: We understand that the 

statutory requirement to apply the 

alternative rebate calculation to a drug 

that is a line extension may be 

operationally confusing and difficult, 

but we do not believe that that it is 

illogical or impossible. As always, CMS 

staff is available to assist manufacturers 

with operational concerns. 

Comment: A few commenters stated 

that CMS presupposes that a 

manufacturer creates a new strength for 

the purpose of avoiding inflation-based 

rebates, or to avoid generic competition. 

One commenter stated that concerns 

about generic competition is irrelevant 

to whether a drug is a line extension 

and CMS does not have authority to 

address patent or generic competition 

issues. 

Response: We do not believe that a 

new strength is necessarily created for 

the purpose of avoiding inflation-based 

rebates or to address generic 

competition. We also do not believe that 

our language in the proposed rule 

concerning reasons why a manufacturer 

may seek approval for a new strength is 

inappropriately addressing patent or 

generic competition issues. Rather, we 

proposed a definition of new 

formulation in order to provide 

guidance to manufacturers on how to 

identify which of its drugs should be 

identified as a line extension, regardless 

of the reasons the new formulation was 

developed. 

We are finalizing our proposal that a 

new strength of a drug is included in the 

definition of a new formulation. 

m. Extended Release Formulation 

Comment: One commenter stated that 

including an extended release 


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formulation in the definition would 

undermine the significant improvement 

Long Acting Injectable (LAI) 

Antipsychotics offer to people with 

mental illness. 

A few commenters disagreed with 

CMS’ inclusion of any new formulation 

other than an extended release 

formulation or similar to an extended 

release formulation in the proposed 

definition of new formulation, citing 

their belief that the proposal conflicts 

with statute and Congressional intent, 

and would undermine longstanding 

statutory incentives that encourage 

innovation. 

Response: The statute defines a line 

extension, in part, as a new formulation 

of a drug and provides an extended 

release formulation as an example. As a 

result, we do not believe we have 

discretion to exclude an extended 

release formulation from the definition 

of new formulation. Nevertheless, we 

believe that our proposed definition is 

consistent with section 1927(c)(2)(C) of 

the Act and appropriate for the reasons 

discussed in the June 2020 proposed 

rule. We do not agree that the 

alternative rebate calculation required 

for a drug that is a line extension 

undermines drug improvements, 

whether the line extension is an 

extended release formulation, or any 

other new formulation. As stated, the 

alternative calculation does not 

categorically result in a higher URA for 

a drug as there are many factors that 

enter into the calculation. If the initial 

brand name listed drug did not increase 

in price in excess of the rate of inflation, 

then the alternative rebate calculation 

for the line extension should not result 

in a higher URA than the standard 

calculation for the drug that is a line 

extension. 

The application of the alternative 

rebate calculation does not nullify 

statutory incentives that encourage 

innovation as those incentives continue 

to be a factor in the calculation of the 

URA for the drug that is a line 

extension. For example, if FDA has 

approved a drug exclusively for 

pediatric indications, or if a drug is 

identified as a clotting factor, section 

1927(c)(1)(B)(iii) of the Act continues to 

allow for a lower percentage of AMP for 

the rebate calculation. 

n. Change in Pharmacodynamics or 

Pharmacokinetic Properties 

Comment: We received one comment 

regarding the proposal to include 

changes in pharmacodynamics or 

pharmacokinetics in the definition of 

new formulation. The commenter stated 

that these types of changes involve more 

than a slight alteration of an existing 

product and may result in changes to an 

active moiety such that it would be 

considered a different active ingredient. 

Response: After considering the 

comment, we concluded that using the 

terminology ‘‘pharmacodynamics or 

pharmacokinetics’’ incorporated a 

broader range of changes than we 

intended with this language. Therefore, 

we are simplifying the language to 

incorporate the more limited types of 

change in the drug that we intended to 

capture, using less complex language. 

Rather than including a change in 

pharmacodynamics or pharmacokinetic 

properties, we are modifying the 

language to include a change in release 

mechanism. Examples of a change in 

release mechanism include, but are not 

limited to, a change from an immediate 

release formulation to a delayed release 

formulation, a change from an extended 

release formulation to an immediate 

release formulation, and a change from 

a non-coated tablet to an enteric coated 

tablet. 

After consideration of public 

comments, we are finalizing a 

modification of our proposal. 

Specifically, we are including in the 

definition of a new formulation a 

change in release mechanism, rather 

than changes in pharmacodynamics or 

pharmacokinetic properties as 

proposed. 

o. Route of Administration 

Comment: A few commenters 

disagreed with CMS’ inclusion of 

changes to route of administration in the 

proposed definition of new formulation, 

citing their belief that the proposal fails 

to consider the benefits of new routes of 

administration and conveys a lack of 

recognition of the value of incremental 

improvements in new formulations. One 

commenter also stated their belief that 

there would be fewer financial 

incentives to develop new and 

improved drugs, including highly 

anticipated, long-acting HIV 

medications for both prevention and 

treatment. 

Response: We believe that our 

proposal to include a drug with a new 

route of administration in the definition 

of new formulation is consistent with 

section 1927(c)(2)(C) of the Act. The 

statute does not limit a line extension to 

only those drugs that do not provide 

additional clinical benefits over the 

initial brand name listed drug. 

Additionally, the statute does not direct 

that the new formulation of the drug has 

to be administered by the same route of 

administration as the original drug. 

Moreover, we do not agree that when 

determining if the alternative rebate 

calculation is required for a drug that is 

a line extension, it is required to 

consider the benefits of new routes of 

administration or the benefits of any 

other new formulation. As stated, the 

alternative calculation does not 

categorically result in a higher URA for 

a drug as there are many factors that 

enter into the calculation. If the initial 

brand name listed drug did not increase 

in price in excess of the rate of inflation, 

then the alternative rebate calculation 

for the line extension should not result 

in a higher URA than the standard 

calculation for the drug that is a line 

extension. 

After consideration of public 

comments, we are including a change in 

route of administration in the definition 

of a new formulation as proposed. 

p. Recommendations for Modifications 

to Proposals 

We received a few comments that are 

out of the scope of the proposed rule 

and we are not addressing those 

comments in this final rule. 

Comment: One commenter 

recommended that the definition of line 

extension should follow the statute 

exactly because it would be less 

confusing. 

Response: We disagree that adopting 

the statutory language as the regulatory 

definition of line extension or new 

formulation would be less confusing. 

One important reason is that the statute 

only provides one example of a type of 

new formulation, that is, an extended 

release product. In addition, experience 

has shown us that since the publication 

of the 2016 final rule, there has been 

confusion and questions regarding the 

identification of drugs that are line 

extensions. In the interest of fairness to 

all affected parties, including states and 

manufacturers, therefore, we believe a 

more detailed regulatory definition, 

along with the information in the 

preamble of this rule, will provide more 

clarity for manufacturers on how to 

correctly identify their drugs that are 

line extensions. 

Comment: A few commenters stated 

that although they support the proposed 

clarification related to line extensions, 

they believe the proposal could be 

further strengthened. One commenter 

recommended that we add non-oral 

drugs and biosimilars to the definition. 

Another commenter recommended that 

CMS explicitly add ‘‘authorized 

generics’’ to the definition of ‘‘line 

extension’’ for purposes of the inflation 

rebate. 

Response: We do not agree with the 

suggestion that we add authorized 

generics to the definition of line 

extension. As discussed in the COD 

final rule (81 FR 5268), we do not read 


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section 1927(c)(2)(C) of the Act as 

treating authorized generic products 

differently. 

Similarly, we do not believe it is 

necessary to provide separate language 

regarding biosimilars and non-oral 

drugs because we do not read section 

1927(c)(2)(C) of the Act as treating 

biosimilars and non-oral drugs 

differently. Both of those categories of 

drugs will be treated according to the 

provisions set forth in this regulation. 

Comment: We received a few 

comments that recommended that a 

drug should only be identified as a line 

extension or new formulation if FDA 

requires only bioequivalence or 

bioequivalence and bioavailability 

studies for a drug. 

Response: We disagree that we should 

rely on these types of studies. We are 

not proposing that bioequivalence or 

bioavailability are among the criteria for 

determining if a product is a line 

extension. Therefore, these studies are 

not relevant to evaluating whether a 

drug is a line extension. 

Comment: A few commenters stated 

that CMS should make it clear that the 

original drug must be the ‘‘truly original 

drug’’ and identify that as the ‘‘first drug 

approved.’’ They wanted it specified 

that drugs that were approved after the 

initial drug but before the line extension 

are not to be treated as an initial brand 

name listed drug. One commenter stated 

that the original drug should be based 

on the chronology of the approval of the 

original drug. One commenter 

recommended that it should be written 

into the regulatory text that a drug must 

be active in the applicable quarter in 

order to be considered as a potential 

initial brand name listed drug. 

Response: We do not agree with the 

commenters who requested us to clarify 

that the initial brand name listed drug 

should be limited to the ‘‘truly original 

drug,’’ As stated in the preamble in the 

proposed rule (85 FR 37289), ‘‘[t]o apply 

the alternative formula described in 

section 1927(c)(2)(C)(iii)(I) through (III) 

of the Act for each line extension and 

rebate period, the manufacturer must 

determine which NDC represents the 

initial brand name listed drug that will 

be used to calculate the alternative 

URA. First, the manufacturer must 

identify all potential initial brand name 

listed drugs by their respective NDCs by 

considering all strengths of the initial 

brand name listed drug in accordance 

with section 1927(c)(2)(C)(iii)(II) of the 

Act.’’ (emphasis added). In order to 

perform the calculation as instructed, all 

strengths of potential initial drugs must 

be considered, regardless of the 

chronology of a drug’s approval, or date 

first marketed. Potential initial brand 

name listed drugs may be excluded from 

consideration if they are not 

manufactured by the same manufacturer 

of the drug that is a line extension or by 

a manufacturer with which the line 

extension manufacturer has a corporate 

relationship. Also, if a potential initial 

brand name listed drug is not active in 

the MDRP during the quarter, it is 

excluded from consideration for that 

quarter and we do not believe it is 

necessary to include that language in 

the regulatory text. 

Comment: A few commenters 

suggested that CMS revise the proposed 

definition of line extension to exclude 

those drugs that have not been assigned 

a different baseline AMP. The 

commenters noted that this would 

minimize administrative burden and 

would also be consistent with 

Congressional intent, which is focused 

on situations where a line extension is 

subject to a lower additional rebate than 

the original drug. 

Response: We do not agree with 

revising the definition of line extension 

or new formulation to exclude those 

drugs that have not been assigned a new 

base AMP. The URA for a drug that is 

a line extension may derive from the 

standard rebate calculation or the 

alternative rebate calculation, and the 

applicable calculation may vary from 

quarter to quarter. One of the required 

fields in the product data is an indicator 

to identify whether a drug is a line 

extension. If a drug is a line extension, 

a determination must be made every 

quarter whether there is an initial brand 

name listed drug to report for the 

quarter. If there is more than one 

potential initial brand name listed drug 

for the quarter, an evaluation must be 

conducted to determine which of the 

potential initial brand name listed drugs 

has the highest additional rebate 

(calculated as a percentage of AMP) for 

that quarter. That NDC must be reported 

as the initial brand name listed drug for 

that quarter. Using that NDC for the 

initial brand name listed drug, if the 

alternative rebate calculation results in 

a higher URA than the standard URA, 

then the alternative URA is used for that 

quarter. As there are numerous variables 

considered and utilized in the 

calculation of the URA for a drug that 

is a line extension, and the base AMP 

value is only one of those variables, it 

is not appropriate to exclude a drug 

from the definition of line extension or 

new formulation based only on the base 

AMP value. 

Comment: One commenter 

recommended that CMS work with FDA 

to create an exceptions process for 

manufacturers where they develop 

criteria for evaluating any petition from 

companies that believe their products 

are not line extensions. 

Response: We do not agree that we 

should create an exceptions process and 

work with FDA to evaluate 

manufacturer petitions for exceptions to 

the definition of line extension or new 

formulation. We believe that the 

regulatory definition is reasonable, is 

consistent with section 1927(c)(2)(C) of 

the Act, and will assist manufacturers in 

appropriately identifying their drugs 

that must be reported as a drug that is 

a line extension. 

Comment: We received a comment 

suggesting that we sever the line 

extension section of this rule, along 

with other sections that may interfere 

with research and development, from 

the rest of the rule. 

Response: We do not believe there is 

a reason to sever sections of this rule. 

There is no evidence that the 

implementation of the line extension 

alternative calculation, which has been 

in effect for 10 years now, has affected 

research and development. 

Manufacturers have had to make 

determinations of which drugs 

constitute a line extension based 

primarily on reasonable assumptions 

over this period. This regulation 

provides more specific direction on 

identifying those drugs that represent 

line extensions. 

q. Prospective Implementation 

Comment: Several commenters 

requested that CMS confirm that any 

new regulation defining the terms 

should be prospective from the date of 

implementation. One commenter also 

noted that they believe if these 

definitions are applied retrospectively, 

this will dramatically increase the fiscal 

impact to the states. One commenter 

requested that CMS clarify that nothing 

would stop a manufacturer from 

voluntarily conforming its past 

reporting to the new definitions. 

Another commenter requested that CMS 

clarify that any regulatory definition of 

‘‘new formulation’’ and application of 

the oral solid dosage form requirement 

would only apply for new products as 

of the effective date of this future final 

rule and that manufacturers may rely on 

their reasonable assumptions for 

existing products. 

Response: The definitions of line 

extension, new formulation, and oral 

solid dosage form finalized in this final 

rule will not be applied retrospectively. 

These definitions become effective for 

all drugs in the MDRP beginning on 

January 1, 2022. Prior to the effective 

date, manufacturers may continue to 

rely on reasonable assumptions to 

determine if their drug is a new 


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formulation in order to comply with the 

statutory requirements and to use for 

potential future review of compliance 

prior to the effective date. If a 

subsequent review by us, by the Office 

of the Inspector General (OIG), or 

another authorized government agency 

determines or reveals that additional 

adjustments or revisions are necessary, 

the manufacturer is responsible for 

complying with that determination. 

r. Delay Effective Date 

Comment: A few commenters 

recommended that CMS consider 

narrowing the redefinition of line 

extension in future rulemaking with 

adequate time for commenters to 

consider the impact and comment, with 

one commenter requesting that if that is 

not possible, that CMS implement the 

new line extension definition with at 

least 12 months’ notice prior to the 

effective date to permit states time to 

make preferred drug list decisions, 

notify patients, and implement changes. 

One commenter also requested that 

CMS specify a compliance date/effective 

date that is at least 4 quarters following 

the publication of the final rule, and 

that the rule should be prospective only. 

Response: Based on the comments 

received, we are finalizing that the 

definitions of line extension, new 

formulation, and oral solid dosage form, 

as well as the requirement that only the 

initial brand name listed drug must be 

an oral solid dosage form, are effective 

beginning on January 1, 2022. For prior 

periods, manufacturers should continue 

to rely on the statutory definition of line 

extension and may continue to make 

reasonable assumptions to determine 

whether their drug is a line extension. 

Based on the comments, we are 

revising the proposed definition of new 

formulation to read: For a drug, a 

change to the drug, including, but not 

limited to: An extended release 

formulation or other change in release 

mechanism, a change in dosage form, 

strength, route of administration, or 

ingredients. In addition, as discussed in 

section II.C. of this final rule, we are 

finalizing that the definitions of line 

extension, new formulation, and oral 

solid dosage form, as well as the 

requirement that only the initial brand 

name listed drug must be an oral solid 

dosage form, are effective beginning on 

January 1, 2022. For prior periods, 

manufacturers should continue to rely 

on the statutory definition of line 

extension and may continue to make 

reasonable assumptions to determine 

whether their drug is a line extension. 

s. Corporate Relationship 

In the June 2020 proposed rule (85 FR 

37295), we noted that under 

§ 447.509(a)(4)(iii), manufacturers are 

required to calculate the alternative 

URA if the manufacturer of the line 

extension also manufactures the initial 

brand name listed drug or has a 

corporate relationship with the 

manufacturer of the initial brand name 

listed drug. Although a drug may satisfy 

the definition of line extension, and 

therefore, should be identified in DDR 

as a line extension, a manufacturer is 

not required to calculate the alternative 

URA unless the manufacturer of the line 

extension also manufactures, or has a 

corporate relationship with the 

manufacturer of the initial brand name 

listed drug. 

Although we did not propose any 

changes to this policy, we received 

some comments that were out of the 

scope of the proposed rule and we are 

not addressing them in this final rule. 

5. Oral Solid Dosage Form 

Oral solid dosage form is defined at 

§ 447.502 to mean capsules, tablets, or 

similar drugs products intended for oral 

use as defined in accordance with FDA 

regulation at 21 CFR 206.3 that defines 

solid oral dosage form. As we now have 

more experience reviewing and dealing 

with the line extension provisions from 

the Affordable Care Act, we believed 

that manufacturers may not be 

interpreting the term oral solid dosage 

form consistently. To mitigate any 

potential confusion, we believed that 

manufacturers and other commenters 

would benefit from a more detailed 

definition. In the June 2020 proposed 

rule, we proposed to modify the 

definition of oral solid dosage form. 

In the COD final rule (81 FR 5198), 

CMS interpreted an oral route of 

administration as any drug that is 

intended to be taken by mouth. Because 

there is potential confusion about 

whether a dosage form must be 

swallowed, or otherwise enter the 

gastrointestinal tract to be considered an 

orally administered dosage form, we 

proposed to interpret that an oral form 

of a drug is one that enters the oral 

cavity. This includes, but is not limited 

to, a tablet or film administered 

sublingually and a drug that is orally 

inhaled. We believed that this 

interpretation provides greater clarity to 

commenters regarding what constitutes 

an oral form of a drug. 

Additionally, we believed that 

manufacturers may not be interpreting 

the term solid dosage form consistently. 

To mitigate any potential confusion, we 

proposed to interpret that a solid dosage 

form is a dosage form that is neither a 

gas nor a liquid. 

FDA regulation at 21 CFR 206.3 

defines the term ‘‘solid oral dosage 

form’’ for the purpose of identifying 

drugs for which a code imprint is 

required to permit identification of the 

product. The phrase ‘‘capsules, tablets 

or similar drugs products’’ may not 

encompass the range of dosage forms 

that we believed should be considered 

for the application of the line extension 

provision in the Affordable Care Act. 

For example, a sublingual film is an oral 

solid dosage form; however, because of 

the physical attributes of the dosage 

form, there may not be a requirement to 

imprint an identifying code on the 

dosage form. Another example of an oral 

solid dosage form is a powdered drug 

administered by oral inhalation. 

Therefore, we proposed to modify the 

definition of oral solid dosage form at 

§ 447.502 to read that it is an orally 

administered dosage form that is not a 

liquid or gas at the time the drug enters 

the oral cavity. Additionally, we noted 

that an oral solid dosage form that 

incorporates a medical device would 

not be exempt from this definition 

solely due to the addition of a device to 

the oral solid dosage form. For example, 

if a manufacturer adds a device to a 

tablet, the new drug would not be 

exempt from being a line extension 

solely due to the addition of a device to 

the tablet. 

We received the following comments 

regarding the definition of oral solid 

dosage form: 

Comment: A few commenters 

disagreed with CMS’ proposal to expand 

the definition of an oral solid dosage 

form citing their belief that the 

expanded definition would exceed 

CMS’ statutory or delegated authority. A 

few commenters disagreed with the 

proposed change because it no longer 

relies on an FDA definition of oral solid 

dosage form. One commenter noted the 

current definition that properly relies on 

the FDA definition has caused no 

practical problems. Another commenter 

noted that not relying on the FDA 

definition would result in needless 

confusion, requiring manufacturers to 

evaluate dosage forms under two 

incongruous legal standards. 

Several commenters disagreed with 

CMS’ proposed definition of oral solid 

dosage form citing their belief that 

modifying the definition would result in 

a substantial chilling effect on drug 

innovation. One commenter stated that 

the proposed definition fails to take into 

account that oral drugs, including 

inhaled drugs, become the threshold for 

any subsequent dose form of a particular 

product brought to market. 


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Several commenters supported the 

proposal to expand the definition of oral 

solid dosage form. One commenter 

agreed with CMS’ proposal to include 

powdered inhalations and sublingual 

films in the proposed definition for an 

oral solid dosage form and also 

encouraged CMS to clearly state that 

liquid filled capsules are considered 

oral solid dosage forms. 

One commenter requested that CMS 

clarify that any regulatory definition of 

new formulation and application of the 

oral solid dosage form requirement 

would only apply for new products as 

of the effective date of the final rule and 

that manufacturers may rely on their 

reasonable assumptions for existing 

products. 

Response: The commenter did not 

explain how our proposed definition of 

oral solid dosage form would exceed our 

statutory or delegated authority. 

Nevertheless, we believe that our 

proposed definition is consistent with 

section 1927(c)(2)(C) of the Act and 

appropriate for the reasons discussed in 

the June 2020 proposed rule. 

We do not agree that we should retain 

FDA’s regulatory definition at 21 CFR 

206.3 for purposes of identifying an oral 

solid dosage form for the MDRP. As we 

stated in the proposed rule, the FDA 

definition at 21 CFR 206.3 is for the 

purposes of identifying drugs that 

require a code imprint on the dosage 

form. Due to physical characteristics of 

some oral solid dosage forms, it may be 

impossible to imprint a code on them. 

Since FDA’s regulatory definition is 

used for the specific purpose of 

determining when a code must be 

imprinted on a dosage form, and that 

identification bears no relationship to 

identifying what drugs are subject to the 

alternative rebate calculation for line 

extension drugs, we believe that it is 

reasonable to adopt a different 

definition than FDA’s definition for the 

purposes of identifying an oral solid 

dosage form for the line extension 

provisions. 

We also do not agree that modifying 

the definition of oral solid dosage form 

will necessarily discourage innovation. 

As stated, the alternative calculation 

does not categorically result in a higher 

URA for a drug as there are many factors 

that enter into the calculation. If the 

initial brand name listed drug did not 

increase in price in excess of the rate of 

inflation, then the alternative rebate 

calculation for the line extension should 

not result in a higher URA than the 

standard calculation for the drug that is 

a line extension. We also disagree that 

we failed to take into account that oral 

drugs become the threshold for any 

subsequent dose form. The statute 

requires that the initial drug is 

necessarily the threshold drug for any 

line extension of that drug. 

We appreciate the support of the 

commenter who agreed with our 

inclusion of inhaled powders and 

sublingual films as an oral solid dosage 

form and we do understand that 

adopting this interpretation includes the 

possibility that an inhaled drug that is 

an oral solid could be an initial brand 

name listed drug. We agree that liquid 

filled capsules satisfy the proposed 

definition of oral solid dosage form 

because when the liquid filled capsule 

enters the oral cavity, it is a solid dosage 

form. 

We do not agree that only products 

introduced on or after the effective date 

of the final rule should be subject to the 

requirement that only the initial brand 

name listed drug must be an oral solid 

dosage form and the regulatory 

definitions of oral solid dosage form, 

line extension, and new formulation. 

Although manufacturers will not be 

required to apply the regulatory 

definitions and oral solid dosage form 

requirement when calculating rebates 

for periods prior to the effective date of 

the final rule, the definitions become 

effective for all drugs that are on the 

market as of and following that effective 

date. 

We are finalizing the definition of oral 

solid dosage form as proposed. In 

addition, as discussed in section II.C. of 

this final rule, we are finalizing that the 

definitions of line extension, new 

formulation, and oral solid dosage form, 

as well as the requirement that only the 

initial brand name listed drug must be 

an oral solid dosage form, are effective 

beginning on January 1, 2022. For prior 

periods, manufacturers should continue 

to rely on the statutory definition of line 

extension and may continue to make 

reasonable assumptions to determine 

whether their drug is a line extension. 

6. Multiple Source Drug 

The MSIAA clarified the definition of 

multiple source drug in section 1927(k) 

of the Act by removing ‘‘(not including 

any drug described in paragraph (5))’’ 

and inserting ‘‘, including a drug 

product approved for marketing as a 

non-prescription drug that is regarded 

as a covered outpatient drug under 

paragraph (4),’’. Section 1927(k)(7)(A)(i) 

of the Act now provides that the term 

multiple source drug means, for a rebate 

period, a COD, including a drug product 

approved for marketing as a nonprescription drug that is regarded as a 

COD under section 1927(k)(4) of the Act 

for which there is at least 1 other drug 

product which: Is rated as 

therapeutically equivalent (under FDA’s 

most recent publication of ‘‘Approved 

Drug Products with Therapeutic 

Equivalence Evaluations’’), except as 

provided in section 1927(k)(7)(B) of the 

Act, is pharmaceutically equivalent and 

bioequivalent, as defined in section 

1927(k)(7)(C) of the Act and as 

determined by FDA, and is sold or 

marketed in the United States during 

the period. 

We proposed to revise the definition 

of multiple source drug at § 447.502 to 

align with the statutory definition. 

Specifically, we proposed to revise the 

definition of multiple source drug to 

mean, for a rebate period, a COD, 

including a drug product approved for 

marketing as a non-prescription drug 

that is regarded as a COD under section 

1927(k)(4) of the Act, for which there is 

at least 1 other drug product which 

meets all the following criteria: 

• Is rated as therapeutically 

equivalent (under the FDA’s most recent 

publication of ‘‘Approved Drug 

Products with Therapeutic Equivalence 

Evaluations’’ which is available at 

http://www.accessdata.fda.gov/scripts/ 

cder/ob/). 

• Except as provided at section 

1927(k)(7)(B) of the Act, is 

pharmaceutically equivalent and 

bioequivalent, as defined at section 

1927(k)(7)(C) of the Act and as 

determined by the FDA. 

• Is sold or marketed in the United 

States during the period. 

We did not receive public comments 

on the definition of multiple source 

drug, and therefore, we are finalizing as 

proposed. 

7. Single Source Drug 

The MSIAA clarified the definition of 

single source drug in section 1927(k) of 

the Act by removing the phrase ‘‘an 

original new drug application’’ and 

inserting ‘‘a new drug application’’, 

inserting ‘‘, including a drug product 

approved for marketing as a nonprescription drug that is regarded as a 

covered outpatient drug under 

paragraph (4),’’ after ‘‘covered 

outpatient drug’’, inserting ‘‘unless the 

Secretary determines that a narrow 

exception applies (as described in 

§ 447.502 of title 42, Code of Federal 

Regulations or any successor 

regulation))’’ after ‘‘under the new drug 

application’’ and adding language to 

specify that such term also includes a 

COD that is a biological product 

licensed, produced, or distributed under 

a biologics license application approved 

by the FDA. Section 1927(k)(7)(A)(iv) of 

the Act now defines a single source drug 

to mean a COD, including a drug 

product approved for marketing as a 

non-prescription drug that is regarded 


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as a COD under section 1927(k)(4) of the 

Act, which is produced or distributed 

under an NDA approved by the FDA, 

including a drug product marketed by 

any cross-licensed producers or 

distributors operating under the NDA 

unless the Secretary determines that a 

narrow exception applies (as described 

in § 447.502 or any successor regulation) 

and the term includes a COD that is a 

biological product licensed, produced, 

or distributed under a biologics license 

application approved by the FDA. To 

align the regulatory definition with the 

definition in the statute at section 

1927(k)(7)(A)(iv) of the Act, as clarified 

by the MSIAA, we proposed to revise 

the regulatory definition of single source 

drug at § 447.502. We proposed to 

define single source drug in § 447.502 to 

mean a COD, including a drug product 

approved for marketing as a nonprescription drug that is regarded as a 

COD under section 1927(k)(4) of the 

Act, which is produced or distributed 

under an NDA approved by the FDA, 

including a drug product marketed by 

any cross-licensed producers or 

distributors operating under the NDA 

unless the Secretary determines that a 

narrow exception applies (as described 

in § 447.502) and includes a COD that 

is a biological product licensed, 

produced, or distributed under a 

biologics license application approved 

by the FDA. 

We received the following comments 

regarding the definition of single source 

drug at § 447.502: 

Comment: One commenter requested 

that CMS revise their proposed 

definition of single source drug to only 

apply prospectively from October 2019 

forward, citing their belief that since 

this is the date the Congress amended 

the MDRP statute, it would be in 

accordance with the recent ruling in the 

United States District Court for the 

District of Columbia case of STI 

Pharma, LLC v. Azar. 

Response: The revision to the 

definition of single source drug is to 

conform the rule with the amended 

statute. Our longstanding interpretation 

of the statute (both before and after the 

2019 amendments) is that a single 

source drug is a drug approved under an 

NDA, and noninnovator drugs are those 

approved under an ANDA. We believe 

STI Pharma, LLC v. Azar was wrongly 

decided. Prior to the 2016 COD final 

rule, there was no narrow exception to 

that general rule. Therefore, any drug 

approved under an NDA that is reported 

as a noninnovator multiple source drug 

for quarters prior to 2Q2016 is 

improperly categorized and the drug 

manufacturer should request a drugcategory change or risk enforcement 

action. 

We are finalizing the definition of 

single source drug as proposed. 

8. CMS-Authorized Supplemental 

Rebate Agreements (SRAs) 

States may enter into separate or 

supplemental drug rebate agreements as 

long as such agreements achieve drug 

rebates equal to or greater than the drug 

rebates set forth under the NDRA. (See 

section 1927(a)(1) of the Act.) CMS 

approval to enter directly into such 

agreements with manufacturers is 

required under section 1927(a)(1) of the 

Act, and thus, states are required to use 

the SPAs process as a means to seek 

CMS authorization. Supplemental 

rebates must be considered a reduction 

in the amount expended under the state 

plan in the quarter for medical 

assistance as provided at section 

1927(b)(1)(B) of the Act. See program 

guidance at https://www.medicaid.gov/ 

federal-policy-guidance/downloads/ 

smd091802.pdf. 

The Affordable Care Act revised 

section 1927(b)(1)(A) of the Act to 

require that manufacturers provide 

rebates for CODs dispensed to 

individuals enrolled with a Medicaid 

MCO when the organization is 

responsible for coverage of such drugs. 

At that time, states had to re-assess 

whether or not to directly collect 

supplemental rebates related to CODs 

dispensed to Medicaid managed care 

enrollees if the MCO was responsible for 

such drug coverage. Some states 

required their MCOs to collect and share 

supplemental rebates under the CMSauthorized SRA, while other states 

permitted their MCOs to negotiate their 

own rebates with manufacturers outside 

of the CMS-authorized supplemental 

rebate agreement, allowing the MCO to 

keep the savings generated by the 

supplemental rebates. 

The Affordable Care Act amendment 

to section 1927(b)(1)(A) of the Act also 

prompted some manufacturers to make 

assumptions with regard to AMP and 

best price calculations. Specifically, 

manufacturers made assumptions that 

all supplemental rebates paid by 

manufacturers for prescriptions 

dispensed to Medicaid managed care 

enrollees should be excluded from the 

manufacturer’s determination of AMP 

and best price. That included those 

rebates paid directly to Medicaid MCOs, 

even if those rebates were not a result 

of a CMS-authorized SRA, and 

therefore, not shared with the state or 

eventually used to offset state drug 

expenditures prior to claiming FFP from 

the federal government. Since CMSauthorized SRA is not defined as it is 

used at §§ 447.504(c)(19) and (e)(9) and 

447.505(c)(7), manufacturers assumed 

that any supplemental rebates paid 

based on dispensing to Medicaid 

managed care enrollees are always a 

part of a CMS-authorized SRA with the 

states. However, rebates paid to 

Medicaid MCOs may be paid by 

manufacturers that are not part of a 

CMS-authorized SRA and are not shared 

with the state to offset drug 

expenditures prior to claiming FFP. 

Therefore, to clarify that such rebates 

paid by manufacturers are not part of a 

state’s CMS-authorized SRA, in the June 

2020 proposed rule, we proposed to 

define CMS-authorized supplemental 

rebate agreement to mean an agreement 

that is approved through a SPA by CMS, 

which allows a state to enter into single 

and/or multi-state supplemental drug 

rebate arrangements that generate 

rebates that are at least as large as the 

rebates set forth in the Secretary’s 

national drug rebate agreement with 

drug manufacturers. 

Furthermore, and consistent with 

section 1927(b)(1)(B) of the Act which 

provides that the amounts received by a 

state under paragraph (a)(1) (federal 

rebates) or an agreement under 

paragraph (a)(4) (the existing state 

rebates) in any quarter shall be 

considered to be a reduction in the 

amount expended under the state plan 

in the quarter for medical assistance for 

purposes of section 1903(a)(1) of the 

Act. As proposed, the definition further 

stated that the revenue from these 

rebates must be paid directly to the state 

and be used by the state to offset a 

state’s drug expenditures resulting in 

shared savings with the federal 

government. 

We received the following comments 

on the proposed definition of CMSauthorized SRA: 

Comment: A few commenters 

requested that CMS confirm that the 

proposed definition of CMS-authorized 

SRA permits states and manufacturers 

to negotiate VBP arrangements with the 

state Medicaid program’s approval and 

in compliance with this definition, 

without requiring further levels of 

approval or submission of a SPA. 

Another commenter further requested 

that CMS reinforce the need for states to 

obtain CMS approval prior to 

implementing changes to supplemental 

rebate policies. 

Response: The proposed definition of 

CMS-authorized SRA permits the states 

and manufacturers to negotiate VBP 

arrangements; however, state Medicaid 

programs must seek approval via the 

SPA process to enter into a CMSauthorized SRA, including SRAs that 

reference VBP arrangements. We have 


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20https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/ 

downloads/rx-releases/state-releases/state-rel176.pdf. 

21https://www.medicaid.gov/sites/default/files/ 

Federal-Policy-Guidance/downloads/ 

smd091802.pdf. 

also encouraged states and 

manufacturers to consider negotiating 

supplemental rebates as part of VBP 

arrangements by directing them to 

review the September 18, 2002 State 

Medicaid Director Letter regarding 

supplemental rebates and seek 

authorization under section 1927(a)(1) 

of the Act from CMS to ensure 

compliance with section 1927 of the Act 

when entering directly into SRAs with 

manufacturers.20

Comment: One commenter requested 

that CMS revise the first sentence of the 

definition to state that CMS-authorized 

SRA means an agreement that is 

approved through a SPA by CMS, which 

allows a state to enter into single and/ 

or multi-state supplemental drug rebate 

arrangements that may generate rebates 

in addition to the rebates set forth in the 

Secretary’s national rebate agreement 

with drug manufacturers. Another 

commenter requested CMS to revise the 

definition to clarify that rebates may fall 

within the definition of CMS-authorized 

SRA regardless of their amount and that 

a SRA may be approved by CMS as long 

as the combined rebate payment under 

the supplemental and national rebate 

agreements is greater than or equal to 

the rebate under the national rebate 

agreement alone. 

Response: In the September 18, 2002 

State Medicaid Director letter regarding 

supplemental rebate agreements, CMS 

directed that states seek CMS approval 

under section 1927(a)(1) of the Act to 

enter directly into agreements with 

manufacturers and in doing so, must 

ensure that any such agreement will 

achieve drug rebates that are at least 

equal to the rebates set forth in the 

Secretary’s rebate agreements with 

manufacturers.21 We continue to believe 

this is an appropriate interpretation of 

the statute, and thus, we are not revising 

the definition of CMS-authorized 

supplemental rebate agreement as 

suggested by the commenters. 

Comment: A few commenters 

recommended CMS clarify that any VBP 

arrangements that states already entered 

into with manufacturers will continue 

to be treated as ‘‘CMS-authorized 

supplemental rebate agreements’’, and 

therefore, exempt from Best Price and 

AMP calculations. Another commenter 

also requested that CMS provide 

confirmation that states will be 

permitted to use SRAs but would not be 

required to use the pre-approved 

template. One commenter 

recommended that CMS provide 

additional guidance to enhance SRAs to 

align with flexibilities granted under the 

rule. 

Response: States that have entered 

into CMS-authorized VBP SRAs have 

submitted a different template through 

the SPA approval process than that used 

under traditional non-VBP 

supplemental rebate agreements. Thus, 

states may have both a SRA approved 

for a non-VBP based template as well as 

a VBP-based template. Once CMS 

approves either template, rebates 

provided for under agreements entered 

into between states and manufacturers 

are exempt from best price. States do 

not need to submit a SPA to take 

advantage of the multiple best price 

VBP approach as described in this final 

regulation. However, a state could 

negotiate its own VBP arrangement 

outcomes based rebate approach under 

a CMS-authorized SRA, and those 

rebates would be exempt from Medicaid 

best price. 

Comment: A few commenters 

supported CMS’ proposed definition of 

CMS-authorized SRA with one 

commenter specifically recommending 

that CMS require any Medicaid MCO to 

utilize only CMS-authorized SRAs. 

Response: Medicaid MCOs may enter 

into their own SRAs with 

manufacturers, but as noted in this rule, 

only prices pursuant to CMS-authorized 

SRAs would be exempt from best price. 

If a Medicaid MCO enters into their own 

SRAs with manufacturers, such prices 

are not exempt from best price. This 

rule does not address the types of SRAs 

a Medicaid MCO may enter into, and 

thus, a MCO is not required to only 

utilize CMS-authorized SRAs. 

Comment: One commenter stated that 

although they generally support the 

proposed definition of CMS-authorized 

SRA, they also requested that CMS edit 

the definition as follows: ‘‘Revenue from 

these rebates must be paid directly to 

the state under section 1927 of the Act 

and be used by the state to offset a 

state’s drug expenditures resulting in 

shared savings with the Federal 

government.’’ The commenter noted this 

will ensure consistency with the 

existing regulations (see 

§§ 447.504(c)(19) and (e)(9) and 

447.505(c)(7)). 

Response: We appreciate the 

comment but believe the phrase ‘‘under 

section 1927 of the Act’’ is not necessary 

since it is already included in the 

exclusions listed in the determination of 

AMP and best price regulations at 

§§ 447.504(c)(19) and (e)(9) and 

447.505(c)(7). 

Comment: One commenter urged 

CMS to expressly confirm that a 

manufacturer may exclude rebates paid 

under a CMS-authorized SRA from AMP 

and best price, without having to verify 

that the rebate payments are in fact 

‘‘used by the state to offset a state’s drug 

expenditures’’ citing their belief that it 

would not be reasonable to hold 

manufacturers accountable for how a 

state uses a rebate payment. 

Response: We agree that it is the 

responsibility of the state, not the 

manufacturer, to ensure that rebates 

paid by manufacturers under the CMSauthorized SRA are used by the state to 

offset a state’s drug expenditures 

resulting in shared savings with the 

federal government. Manufacturer 

rebates paid under a CMS-authorized 

SRA must be excluded from AMP and 

best price in accordance with 

§§ 447.504(c)(19) and (e)(9) and 

447.505(c)(7). 

Comment: Several commenters 

disagreed with the language in the 

proposed definition of CMS-authorized 

SRA that states ‘‘Revenue from these 

rebates must be paid directly to the 

state’’. A few commenters recommended 

that CMS exclude rebates that are 

reported by MCOs from best price/AMP 

because the commenter noted rebates 

reported by MCOs are factored into a 

state’s rate setting process, and 

therefore, are treated as if they had been 

received directly by the state. 

Response: The issue is whether the 

rebates that are paid for these covered 

outpatient drugs are paid in accordance 

with a CMS-authorized supplemental 

rebate agreement, and thus exempt from 

inclusion in the calculation of the 

manufacturer’s AMP and best price, or 

paid directly to the MCO, and are not 

exempt from the inclusion in the 

calculation of the manufacturer’s AMP 

and best price. 

As stated in the preamble to this final 

rule, the definition of CMS-authorized 

SRA is consistent with section 

1927(b)(1)(B) of the Act which provides 

that the amounts received by a state 

under paragraph (a)(1) (federal rebates) 

or an agreement under paragraph (a)(4) 

(the existing state rebates) in any quarter 

shall be considered to be a reduction in 

the amount expended under the state 

plan in the quarter for medical 

assistance for purposes of section 

1903(a)(1) of the Act. The proposed 

definition provides that these rebates 

must be paid directly to the state which 

the states then use to offset its drug 

expenditures, resulting in shared 

savings with the federal government. 

Therefore, any manufacturer rebate 

revenue collected by the MCOs on 

behalf of the state that are part of any 


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CMS-authorized SRAs must be shared 

with the state directly in accordance 

with section 1927(b)(1)(B) of the Act. 

We also do not agree that manufacturers 

should exclude rebates that are directly 

paid to MCOs outside a CMS authorized 

supplemental rebate reported by MCOs 

from AMP or best price. That is because 

they are not provided directly to the 

state by the manufacturer under a CMSauthorized supplemental rebate 

agreement. 

Comment: One commenter noted that 

Medicaid MCOs are critical in 

maintaining the cost-effectiveness and 

quality of care for the Medicaid program 

through medication adherence, care 

coordination, and timely provider 

interventions, and stated that it is 

critical that MCOs are retained as 

important partners during negotiations 

between states and manufacturers. 

Response: This comment is outside 

the scope of this regulation. 

In consideration of the comments 

received, we are finalizing the definition 

of CMS-authorized SRA at § 447.502 as 

proposed, to mean an agreement that is 

approved through a SPA by CMS, which 

allows a state to enter into single and/ 

or multi-state supplemental drug rebate 

arrangements that generate rebates that 

are at least as large as the rebates set 

forth in the Secretary’s national rebate 

agreement with drug manufacturers. 

Revenue from these rebates must be 

paid directly to the state and be used by 

the state to offset a state’s drug 

expenditures resulting in shared savings 

with the federal government. 

D. Exclusion of Certain Manufacturer 

Sponsored Patient Assistance Programs 

(‘‘PBM Accumulator Programs’’) From 

Determination of Best Price (§ 447.505) 

and AMP (§ 447.504) 

Manufacturers participating in the 

MDRP are required to report certain 

pricing information to the Secretary, 

including a COD’s best price and AMP. 

Best price is defined at section 

1927(c)(1)(C) of the Act to mean, for a 

single source or innovator multiple 

source drug of a manufacturer 

(including the lowest price available to 

any entity for any such drug of a 

manufacturer that is sold under a NDA 

approved under section 505(c) of the 

FFDCA), the lowest price available from 

the manufacturer during the rebate 

period to any wholesaler, retailer, 

provider, HMO, nonprofit entity, or 

government entity within the United 

States, subject to certain exclusions. 

Section 1927(c)(1)(C)(ii) of the Act 

further defines the term best price to be 

inclusive of cash discounts, free goods 

that are contingent on any purchase 

requirement, volume discounts, and 

rebates (other than rebates under this 

section). The definition of best price is 

further defined at § 447.505(a) and 

includes the lowest price available from 

the manufacturer during the rebate 

period to any provider, which is defined 

to mean a hospital, HMO, MCO, or 

entity that provides coverage or services 

to individuals for illnesses or injuries or 

providers services or items in the 

provision of healthcare. Paragraph (b) 

further indicates that best price includes 

all prices, including applicable 

discounts, rebates, or other transactions 

that adjust prices either directly or 

indirectly to the best price eligible 

entities in paragraph (a). 

We have learned that some health 

plans (which meet the definition of 

provider when determining best price) 

are being instructed or encouraged by 

their PBMs to apply manufacturer 

sponsored patient assistance programs, 

such as patient copay assistance 

programs, to the benefit of the plan, 

instead of entirely to the patient. (Note 

that Medicaid patients are not eligible 

for these manufacturer sponsored 

programs, but the administration of 

these programs by commercial health 

plans and PBMs can affect the rebates 

that the Medicaid program receives from 

the manufacturer-sponsor of these 

programs.) 

For example, certain PBMs have 

instructed health plans to not allow the 

manufacturer-sponsored patient 

assistance to be applied towards a 

patient’s plan deductible for a brand 

name drug not on a plan’s formulary. 

PBMs contend that such programs steer 

consumers towards more expensive 

medications when there may be more 

cost saving options, such as generic 

substitution. Therefore, PBMs offer 

health plans that are commonly referred 

to as PBM accumulator programs and 

tout them as cost saving measures. For 

instance, using a copayment assistance 

card program as an example, instead of 

applying the manufacturer sponsored 

patient assistance program in a manner 

that bestows the entire benefit of the 

program to the patient or consumer, and 

ensures no contingency on a purchase 

requirement, as applicable, the PBM (on 

behalf of the plan) identifies when a 

copayment card is used by a patient and 

adjusts the beneficiary’s deductible only 

in instances when the out-of-pocket 

contribution is made by the beneficiary. 

As a result, the manufacturer-sponsored 

assistance does not accrue towards a 

patient’s deductible and the patient 

sometimes does not realize this until the 

manufacturer copayment assistance 

runs out and the patient receives a 

significantly larger bill for the drug. 

This results in the health plan delaying 

the application of its plan benefit to the 

patient to the detriment of the patient or 

consumer, thus generating savings for 

the plan. We provide the following 

example in this rule: 

Example: 

Assume: $2,500 Drug cost 

$2,500 Patient Deductible 

$10,000 Copayment Assistance 

Program Maximum 

In the no PBM accumulator scenario 

below, the manufacturer’s copayment 

assistance accrues to the benefit of the 

patient because the patient has a high 

deductible, which is what we believed 

the manufacturer intended. In such 

cases, it is clear that the manufacturer’s 

program is directly assisting the 

patient’s copayment/deductible costs. 

TABLE 1—COPAY ASSISTANCE PROGRAM WITH NO PBM ACCUMULATOR PROGRAM

Jan Feb Mar Apr May June 

Plan Pays .......................... $0 $2,000 .......................................................................... $2,000 $2,000 $2,000 $2,000 

Patient Pays ...................... 25 $25 ............................................................................... 25 25 25 25 

Manufacturer Pays ............ 2,475 $475 deductible reached. Manufacturer only pays 

$475.

475 475 475 475 

In the PBM accumulator scenario in 

Table 2, the PBM does not apply the 

manufacturer’s copayment assistance to 

the deductible of the patient thus 

delaying the patient satisfying his or her 

deductible, which benefits the health 

plan. The patient usually is not aware 

of the change until he is subject to a 

larger cost share of the drug when the 

manufacturer’s support copay benefit 

maximum is reached (see May column). 

At that time, the patient receives a 

significantly a larger bill. 


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TABLE 2—COPAY ASSISTANCE PROGRAM WITH PBM ACCUMULATOR PROGRAM

Jan Feb Mar Apr May June 

Plan Pays .......................... $0 $0 $0 $0 $0 ................................................................................. $2,000 

Patient Pays ...................... 25 25 25 25 $2,400 .......................................................................... 500 

Manufacturer Pays ............ 2,475 2,475 2,475 2,475 100 manufacturer copay benefit max. reached ........... 0 

As demonstrated in Table 2, the 

health plan is benefiting from the 

manufacturer sponsored copay 

assistance program instead of the 

patient (consumer). However, 

manufacturers, in these instances, claim 

they are not aware of when these 

practices by the health plans take place, 

and therefore, make reasonable 

assumptions that their discount 

programs meet the criteria at 

§ 447.505(c) that exclude such programs 

from best price. 

Specifically, manufacturers make 

reasonable assumptions that their 

programs meet the best price exclusions 

listed in § 447.505(c)(8) through (12) 

which provide: 

• Manufacturer-sponsored drug 

discount card programs, but only to the 

extent that the full value of the discount 

is passed on to the consumer and the 

pharmacy, agent, or other entity does 

not receive any price concession 

(§ 447.505(c)(8)). 

• Manufacturer coupons to a 

customer redeemed by a consumer, 

agent, pharmacy, or another entity 

acting on behalf of the manufacturer; 

but only to the extent that the full value 

of the coupon is passed on to the 

consumer, and the pharmacy, agent, or 

other entity does not receive any price 

concession (§ 447.505(c)(9)). 

• Manufacturer copayment assistance 

programs, to the extent that the program 

benefits are provided entirely to the 

patient and the pharmacy, agent, or 

other entity does not receive any price 

concession (§ 447.505(c)(10)). 

• Manufacturer-sponsored patient 

refund or rebate programs, to the extent 

that the manufacturer provides a full or 

partial refund or rebate to the patient for 

out-of-pocket costs and the pharmacy, 

agent or other entity does not receive 

any price concession (§ 447.505(c)(11)). 

• Manufacturer-sponsored programs 

that provide free goods, including but 

not limited to vouchers and patient 

assistance programs, but only to the 

extent that the voucher or benefit of 

such program is not contingent on any 

other purchase requirement; the full 

value of the voucher or benefit of such 

program is passed on to the consumer; 

and the pharmacy, agent or other entity 

does not receive any price concession 

(§ 447.505(c)(12)). 

As discussed in the June 2020 

proposed rule, we understand from 

some manufacturers that they do not 

monitor or place parameters around 

how the benefits of their manufacturersponsored assistance programs are 

applied when an individual has health 

plan coverage. Therefore, we proposed 

to revise these paragraphs to provide 

expressly that the exclusions discussed 

in this rule apply only to the extent the 

manufacturer ensures the full value of 

the assistance or benefit is passed on to 

the consumer or patient. We believe 

manufacturers have the ability to 

establish coverage criteria around their 

manufacturer-sponsored assistance 

programs to ensure the benefit goes 

exclusively to the consumer or patient. 

We noted that nothing in the proposed 

change should be construed to 

contradict any OIG guidance. We 

welcomed comments on the proposal. 

The current list of prices excluded 

from best price as noted in this rule also 

apply to AMP as specified in 

§ 447.504(c) and (e). As stated in the 

COD final rule, to provide consistency 

between the AMP and best price 

sections, where applicable, and to help 

with streamlining and clarifying a 

manufacturer’s price reporting 

responsibilities, the same methodology 

is applied to AMP (81 FR 5253), and for 

the same reasons already discussed in 

this rule, we proposed making 

corresponding changes for these 

exclusions in the context of AMP. 

Accordingly, we proposed to revise 

the determination of best price 

§ 447.505 to add a requirement that 

manufacturers ensure that the benefits 

of their assistance programs as provided 

at § 447.505(c)(8) through (12) are 

provided entirely to the consumer and 

proposed corresponding changes to the 

AMP regulations at § 447.504(c)(25) 

through (29) and (e)(13) through (17). 

We received several types of 

comments on the issue of whether the 

manufacturer should ensure that the 

benefits of their assistance programs be 

provided entirely to the consumer, or 

are actually passed through to the 

patient. These comments could, in 

general, be grouped into the following 

categories: (1) Impact on Patients; (2) 

Legal Authority; (3) Existence of 

Mechanisms to Assist Manufacturers 

with Compliance; (4) Viability of 

Manufacturer Assistance Programs; and 

(5) Impact on other Federal Programs 

and Policies. 

We provide responses to the following 

comments on the exclusion of certain 

manufacturer sponsored patient 

assistance programs (‘‘PBM 

Accumulator Programs’’) from 

determination of best price (§ 447.505) 

and AMP (§ 447.504). 

(1) Impact on Patients 

Comment: Several commenters 

supported the proposals for 

manufacturers to account for patient 

assistance in Medicaid best price 

reporting when it is not passed through 

to the patient, and shared CMS’ 

concerns about the role that health 

carriers and PBMs play in manipulating 

manufacturer-sponsored assistance 

programs, and wanted to ensure 

financial assistance benefits flowed to 

the patient and not the health plan. 

Response: It is our understanding that 

PBM Accumulator Programs shift costs 

back to the patient prematurely by not 

applying the full value of the 

manufacturer-sponsored assistance to a 

patient’s health plan deductible. Upon 

exhaustion of the value of the 

manufacturer’s assistance (manufacturer 

sponsored drug discounts, coupons, 

copayment assistance or refund/rebate 

programs) the beneficiary of the 

manufacturer-sponsored assistance must 

pay the remaining amount of their 

deductible for the drug before the plan’s 

benefit begins. We believe the final rule 

will encourage manufacturers to ensure 

the full value of manufacturersponsored assistance is extended to the 

patient, as described in greater detail 

below. 

Comment: A few commenters 

expressed concern that CMS equates the 

‘‘full’’ value and ‘‘exclusive’’ benefit of 

a manufacturer assistance program with 

reducing the patient’s deductible and 

maximum out-of-pocket obligation and 

stated that there is no factual or 

statutory basis for this proposition. A 

few commenters stated that regardless of 

whether a patient is subject to a PBM 

accumulator program that appropriates 

part of their assistance, the patient has 

received the full benefit of manufacturer 

assistance as long as the manufacturer 

has helped the patient meet their pointof-sale cost and that manufacturers have 


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no control over what happens to the 

benefit after the point-of-sale. One 

commenter stated that CMS is not 

entitled to make the conclusion without 

any supporting evidence that 

manufacturers allow or acquiesce to a 

diversion of the manufacturersponsored assistance away from the 

patient to the plans when PBM 

accumulator adjustment programs are 

used. 

Response: We do not agree with the 

commenter that, as long as the 

manufacturer has helped the patient 

receive manufacturer assistance at the 

point-of-sale, the patient has received 

the full benefit of manufacturersponsored assistance. By not applying 

the manufacturer assistance to a 

patient’s deductible or other cost 

sharing obligations to obtain the drug, 

the assistance becomes a price 

concession to the health plan by 

delaying the point at which the health 

plan’s contribution toward the patient’s 

cost sharing begins, or reducing the 

value of the assistance to the patient, 

and thus should be counted in best 

price and, in certain cases, the 

calculation of the AMP. When the 

patient does not receive the full value of 

the manufacturer’s assistance, the end 

result is that: 

• The patient may be subject to a 

significant out-of-pocket drug bill in the 

event the manufacturer-sponsored 

assistance ends in the middle of the 

plan year, and the patient finds out that 

he or she is still in the deductible phase 

of a benefit. If this happens, the patient 

may need to switch to the less 

expensive alternative offered by the 

plan or pay the full bill for the nonformulary or non-preferred drug, neither 

of which are patient friendly scenarios. 

• The patient is unaware of the other 

more cost effective drugs that his/her 

health plan offers on its drug formulary 

at the time that the original prescription 

is filled. Since the patient likely 

presents at the pharmacy with the 

manufacturer-sponsored assistance card, 

the manufacturer-sponsored assistance 

is automatically applied by the 

pharmacy (electronically) and the 

beneficiary is not made aware of other 

less expensive drug treatments offered 

by the health plan. In other words, it is 

not transparent to the patient at the 

pharmacy (point-of-sale) which drug 

may be more affordable to the patient in 

the long run. 

Comment: Several commenters 

expressed concern about the impact of 

the proposal on patients with rare, lifethreatening illnesses or complex chronic 

conditions who rely on discounts and 

copay assistance to access specialty 

medications, and disagreed that patient 

assistance steers consumers towards 

more expensive medications because 

there is often no generic alternative or 

clinically appropriate substitute. Many 

commenters raised concerns about the 

potential impact of the proposals in this 

section on medication adherence, 

medical complications, outcomes, and 

hospitalizations and requested CMS to 

take patient’s special needs into 

consideration. 

Response: We do not believe that the 

final policies we are adopting in this 

final rule will negatively impact 

patients with rare, life-threatening 

illnesses who rely on manufacturer 

assistance programs. Rather, we do 

believe that there is a corollary benefit 

to this proposed policy, as it might lead 

to reforms in manufacturer assistance 

programs. We understand from many 

manufacturers and patient groups that 

PBM accumulator programs are 

increasing in number, and that the value 

of these programs to the patient is 

diminishing. It is not clear how these 

programs can continue to benefit 

patients without some modifications 

and reforms. 

We believe manufacturers can 

implement a system to ensure the full 

benefit of its manufacturer-sponsored 

assistance passes on to the patient. By 

doing so, patients will continue to have 

access to much needed medication 

which will in turn increase positive 

outcomes and also improve adherence. 

We are aware of situations when a 

patient has been subject to significant 

out-of-pocket costs because the patient 

has not progressed through the 

deductible phase of the health plan. 

That is because the value of the 

manufacturer-sponsored assistance was 

not applied to the patient’s deductible. 

When this happens, the patient may be 

forced to stop taking the drug, switch to 

an alternative offered by the plan, or pay 

the full bill for the non-formulary drug, 

none of which are patient-friendly, 

especially for those patients with rare 

and life threatening conditions. The 

policies we are adopting in this final 

rule could help avoid these concerns 

because it will improve transparency in 

drug pricing and will ensure that the 

full value of the manufacturerssponsored assistance programs is passed 

on to the patient. We believe this will 

also help assure patient compliance and 

adherence with medications. 

Comment: Several commenters 

expressed concern that the proposed 

rule would encourage expansion of PBM 

accumulator programs and stated that if 

the federal government continues to 

permit PBMs to profit from the use of 

PBM accumulator programs, then 

manufacturers will either have to set 

higher prices for new drugs to offset 

these incremental profits, or withdraw 

manufacturer-sponsored assistance 

altogether, resulting in harm to patients. 

Response: We understand the 

concerns about PBM accumulator 

programs and the impact on 

manufacturer prices. As noted above, 

the current regulations at 42 CFR 

447.504 and 447.505 already require 

that best price and AMP exclude 

manufacturer-sponsored assistance 

programs (copayment, patient refund/ 

rebate, coupons, discount card 

programs) when the full value of the 

assistance is passed on to the consumer, 

and the pharmacy, agent or other entity 

does not receive any price concession. 

The goal of this final policy is to not 

affect drug manufacturers’ prices, but to 

make sure that Medicaid programs 

receive the rebates that they are owed 

from manufacturers if any value of the 

manufacturer assistance is accruing to a 

‘‘best price’’ eligible entity rather than 

the patient. It is possible that 

manufacturers, knowing that any 

assistance not being passed through 

would have to factor in their Medicaid 

rebates, will improve their oversight of 

these manufacturer assistance programs 

such that they will not have to pay 

higher rebates to Medicaid. This could 

actually lead to lower drug prices, and 

increase the amount of manufacturer 

assistance that will actually go to 

patients. This will help reduce the 

potential for patient harm resulting from 

a lack of compliance with medications 

if the patient cannot afford them 

because they are not receiving the full 

value of their cost sharing assistance. 

Thus, we believe the proposed rule 

and the policies we are adopting in this 

final rule will encourage manufacturers 

to monitor and track their manufacturersponsored assistance programs to ensure 

the full value of the manufacturersponsored assistance goes to the 

consumer and not to health plans. 

Comment: Several commenters noted 

that another justification for prohibiting 

or increasing oversight of PBM 

Accumulator Programs is the surprise 

impact of receiving a significantly larger 

bill for the drug than expected due to 

lack of patient awareness of PBM 

policies that do not count manufacturersponsored assistance towards patient 

cost-sharing obligations. 

A few commenters recommended 

requiring plans to give notice to a 

patient of its intent to withhold third 

party funds, and explain in plain 

language what benefits accrue to the 

patient, how manufacturer assistance 

will be affected and applied, and 

account for third-party assistance, as a 

potential alternative to the proposals in 


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this section. One commenter supported 

a policy alternative requiring health 

plans and PBMs to apply price 

reduction instruments for out-of-pocket 

expenses when calculating an insured 

individual’s cost-sharing requirement. 

Response: We appreciate the 

comments regarding the identification 

of certain mechanisms to increase 

patient awareness that the health plan 

that they are enrolled in may use a PBM 

accumulator program. We agree with the 

many comments that we received 

expressing concern about the impact of 

these programs on patients, including 

the sudden impact that such programs 

can have on patient out-of-pocket 

spending for their drugs, and lack of 

patients’ awareness of the existence of 

such programs. 

We are only able to regulate this issue 

within the scope of the Medicaid drug 

rebate program rules. That is, under the 

MDRP, the manufacturer can only 

exclude manufacturer assistance that is 

fully passed through to a patient/ 

consumer from the calculation of best 

price, and when applicable, AMP for 5i 

drugs. We believe the final policies 

adopted in this rule will help ensure the 

full benefits of the manufacturersponsored assistance program are 

passed on to the patient, which 

hopefully, will have the added benefit 

of reducing some of the negative 

consequences that patients have faced 

as a result of manufacturers not making 

such assurances related to PBM 

accumulator programs. 

Comment: Several commenters 

supported CMS’ proposals on the basis 

that they may reduce spending on 

prescription drugs and noted that the 

use of manufacturer sponsored coupons 

and similar arrangements are designed 

to increase drug spending, needlessly 

drive consumers to high cost treatments 

and circumvent utilization management 

tools adopted by health plans. Several 

commenters stated that manufacturer 

copay coupons create anti-competitive 

effects, market disruptions, unreliable 

access for patients, and undermine more 

affordable generic or biosimilar drugs, 

and viewed CMS proposals as an effort 

to prevent manufacturers from 

increasing drug prices without market 

constraints. 

Response: We appreciate the 

comments and agree that manufacturersponsored assistance may increase drug 

spending by circumventing health plan 

utilization management tools and 

steering patients towards more 

expensive treatments not necessarily 

covered by a patient’s plan. We are also 

concerned that patient out-of-pocket 

spending will increase significantly 

when the manufacturer-sponsored 

assistance runs out, and patients are 

required to pay for the drug in full much 

earlier than anticipated. We believe that 

this rule will encourage manufacturers 

to examine the structures of their 

manufacturer-sponsored assistance 

program(s) so that patients are not 

surprised by high drug costs when all or 

part of the cost sharing assistance is 

passed through to the plan rather than 

the patient. 

Comment: A few commenters 

defended the existence of PBM 

accumulator programs as necessary to 

ensure that benefits will be 

administered as they are designed, 

rather than artificially reducing 

deductibles for patients on specific high 

cost drugs. 

Response: We are aware that PBM 

accumulator programs are used by 

health plans to ensure their benefits are 

administered as they are designed. 

However, these PBM accumulator 

programs often do not allow for the full 

benefit of the manufacturer-sponsored 

assistance to accrue to the patient. This 

regulation requires that the 

manufacturer be aware of this action 

taken by the PBM so that the 

manufacturer complies with the 

regulations that set forth the 

determination of AMP and best price for 

the purposes of the MDRP. 

Comment: One commenter cited 

several studies, one of which showed 

that for 23 branded drugs studied, 

coupons were associated with a 3.4 

percent decrease in the rate of generic 

utilization and an estimated excess 

spending of 1.2 percent to 4.6 percent 

higher total drug spending over 5 years 

and requested that this be considered a 

well-documented problem rather than 

attributing concerned statements only to 

health plans and PBMs. 

Response: We appreciate the 

information regarding the impact of 

manufacturer-sponsored assistance 

programs have on drug benefits and 

spending. However, as noted above, we 

believe the final policies adopted in this 

rule will ensure that the full benefits of 

the manufacturer-sponsored assistance 

program pass on to the patient, and that 

the exclusions to best price and AMP 

are applied appropriately. 

Comment: A few commenters stated 

that PBM accumulator programs do not 

only apply to brand name drugs not on 

a plan’s formulary, but to all drugs. 

Response: We agree that PBM 

accumulator programs do not apply 

only to single source brand name drugs. 

The use of brand name drugs in the rule 

was an example of a particular situation 

where the PBM does not apply the 

benefit of the manufacturer sponsored 

assistance to the patient’s health plan 

deductible in circumstances when a 

health plan’s formulary covers a lower 

cost generic (or brand) alternative. We 

believe this is one scenario, and not an 

exclusive example. 

(2) Legal Authority 

Comment: Several commenters stated 

that health plan enrollment in a PBM 

accumulator program, or the existence 

of the program, has no bearing on 

manufacturer exclusion of a 

manufacturer assistance program from 

AMP and best price. Several 

commenters stated that requiring 

manufacturers to include the value of 

manufacturer assistance that was 

subsequently taken away from patients 

by plans in the calculation of best price 

is contrary to the statutory definition of 

best price because patient assistance is 

not a price, or a price concession that 

is available from a manufacturer to 

plans. A few commenters suggested that 

to be consistent with CMS’ prior 

interpretations of the statute, patient 

assistance can only be viewed as a price 

concession when the manufacturer 

develops that program specifically for 

patients of a particular payer or PBM, 

but absent such negotiation or 

coordination, and the assistance is not 

‘‘designed to’’ adjust prices to the payer 

or PBM, then the assistance should be 

excluded from AMP and best price. 

Several commenters noted that CMS 

lacks statutory authority for the 

proposals in this section, that they are 

based on erroneous interpretation of the 

Medicaid drug rebate statute, or that 

they are based on unexplained or 

unsupported assumptions, and thus 

requested that CMS rescind the 

proposals related to including patient 

assistance programs in best price and 

AMP unless manufacturers ‘‘ensure’’ 

that their assistance solely benefits 

patients and does not benefit third 

parties. These commenters noted that 

CMS has not articulated an overall 

context or reasoning behind their 

proposed change in treatment of 

manufacturer sponsored patient 

assistance programs, specifically the 

intended outcome for these changes and 

how this approach would achieve those 

goals. One commenter stated that 

implementation of such a dramatic 

change in the assistance available to 

patients across the country should not 

occur without additional explanation 

accompanied by concrete data and 

evidence to support it. A few 

commenters stated that basing the 

proposals in this section on what one 

group of commenters ‘‘contend’’ 

constitutes an ‘‘unsupported and 

conclusory statement’’ that renders 


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CMS’ proposals arbitrary and capricious 

within the meaning of the APA. 

Some commenters stated that it is 

unfair, infeasible, and contrary to 

statutory intent to hold manufacturers 

responsible for ensuring that the 

discount goes exclusively to the 

consumer or patient when 

manufacturers are not involved in the 

application of tools that change how 

assistance is applied to the patient’s 

insurance benefit, and therefore, cannot 

monitor or place parameters around 

them. For these reasons, several 

commenters stated that these proposals 

cannot be operationalized if made final 

and that the agency’s proposals are 

arbitrary and capricious. 

Response: We do not agree with the 

commenters that manufacturersponsored assistance is not a price, or a 

price concession that is available from 

the manufacturer to the plans, in 

situations when health plans participate 

in PBM accumulator programs, and then 

the value of the assistance does not 

accrue in full to the patient. Nor do we 

agree that this proposal is arbitrary and 

capricious, as current regulations 

already provide that manufacturers can 

only exclude manufacturer-sponsored 

assistance if it is being passed through 

to the patient. See §§ 447.504(c) and (e) 

and 447.505(c). 

Manufacturers are fully aware of the 

existence of PBM accumulator 

programs, and may not have taken 

action to date to address the potential 

that they may already be reporting in 

violation of the regulations at 

§ 447.504(c) and (e) for AMP and 

§ 447.505(c) for the calculation of best 

price. These sections of the regulation 

have always stated that the 

manufacturer-sponsored assistance 

(coupons, free goods, discounts, refund/ 

rebate programs and copay assistance) 

exclusions apply only if such assistance 

is passed on to the consumer and the 

pharmacy, agent, or other AMP/best 

price eligible entity does not receive any 

price concession. In cases where the 

PBM accumulator programs do not 

allow any manufacturer-sponsored 

assistance to apply to the beneficiary’ 

deductible, the health plan is receiving 

a price concession in the form of 

delaying the health plan’s obligation to 

provide coverage of the drug under the 

patient’s health plan benefit. This 

postponement in providing benefits to 

the patient, or the accrual of the benefit 

to the plan in whole or part, is a price 

concession to the health plan. 

Since these programs are increasing in 

scope and number, such that it is no 

longer the case that such assistance is 

always passed through to the patient 

which is an existing requirement, we 

believe a change in the regulatory text 

underpinning this exemption is needed. 

Under this final rule, manufacturers 

must ensure that the full value of the 

manufacturer-sponsored assistance is 

passed on to the consumer or patient 

regardless of the specific transactions 

that occur between payers, pharmacies 

and PBMs. 

We believe that we have the statutory 

authority for this rule and have 

explained the overall context or 

rationale to support our proposed 

policies and now our final policies. 

Manufacturers participating in the 

MDRP are required to report certain 

pricing information to the Secretary, 

including a COD’s best price and AMP. 

In the proposed rule, we noted that 

some health plans (which meet the 

definition of provider when determining 

best price) are being instructed or 

encouraged by their PBMs to apply 

manufacturer-sponsored assistance 

programs, such as patient copay 

assistance programs, to the benefit of the 

plan, instead of entirely to the patient. 

Best price is defined at section 

1927(c)(1)(C) of the Act to mean, for a 

single source or innovator multiple 

source drug of a manufacturer 

(including the lowest price available to 

any entity for any such drug of a 

manufacturer that is sold under a NDA 

approved under section 505(c) of the 

FFDCA), the lowest price available from 

the manufacturer during the rebate 

period to any wholesaler, retailer, 

provider, HMO, nonprofit entity, or 

government entity within the United 

States, subject to certain exclusions. 

Section 1927(c)(1)(C)(ii) of the Act 

further defines the term best price to be 

inclusive of cash discounts, free goods 

that are contingent on any purchase 

requirement, volume discounts, and 

rebates (other than rebates under this 

section). The definition of best price is 

further defined at § 447.505(a) and 

includes the lowest price available from 

the manufacturer during the rebate 

period to any provider, which is defined 

to mean a hospital, HMO, MCO, or 

entity that provides coverage or services 

to individuals for illnesses or injuries or 

providers services or items in the 

provision of healthcare. Paragraph (b) 

further indicates that best price includes 

all prices, including applicable 

discounts, rebates, or other transactions 

that adjust prices either directly or 

indirectly to the best price eligible 

entities in paragraph (a). We believe the 

reference to ‘‘other transactions that 

adjust prices either directly or 

indirectly’’ to the best price eligible 

entities in paragraph (a) includes the 

transactions made by the manufacturer 

indirectly to health plans via 

manufacturer-sponsored assistance 

programs should be included. 

Comment: Several commenters stated 

that treating patients as best-price 

eligible entities exceeds the scope of 

CMS’ statutory authority. Several 

commenters stated the plain language of 

the statute requires that to be considered 

for best price calculations as a ‘‘price 

available from the manufacturer,’’ the 

manufacturer had to intend to offer the 

price to a best-price eligible entity. 

However, several commenters stated 

that the Congress’ only intended best 

price-eligible entities under the statute 

are purchasers, wholesalers, retailers, 

providers, HMOs, non-profit entities, 

and governmental entities. Several 

commenters further stated that 

manufacturer-sponsored assistance 

designed solely to benefit patients and 

reduce their out-of-pocket costs cannot 

constitute a ‘‘price available from the 

manufacturer’’ because the 

manufacturer did not intend to offer the 

price to an eligible third party such as 

the health plan, and therefore should 

not be required to include the value of 

assistance in its best price calculations 

when the health plan denies the 

manufacturer assistance apply to 

patients. Other commenters stated that a 

manufacturer can only have intended to 

make the price available to eligible 

entities if the manufacturer negotiated 

with the PBM to offer manufacturer 

assistance or designed the manufacturer 

assistance to benefit the PBM, and 

further stated that when such 

coordination, negotiation, or 

consideration is not present, the 

assistance cannot by a price ‘‘available 

from’’ the manufacturer and included in 

best price. One commenter stated that 

CMS confirmed that patients are not 

eligible purchasers in the COD final rule 

in 2016. 

Response: This regulation does not 

treat patients as best price eligible 

entities. In accordance with current 

regulations at § 447.505(c)(8) through 

(12), prices excluded from best price 

include manufacturer-sponsored 

assistance programs, but only to the 

extent that the full value of the 

assistance is passed on to the consumer, 

and the pharmacy, agent or other entity 

does not receive any price concession 

(see further discussion on these existing 

policies in preamble to COD final rule 

at 81 FR 5254). As proposed and 

finalized in this rule, these regulations 

have been revised to require that a 

manufacturer ensure that the value of 

the manufacturer’s assistance accrues to 

the benefit of the patient and not the 

plan (a best price eligible entity) before 

excluding the value of these assistance 

programs from the determination of best 


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price and AMP. As stated in current 

regulation, the manufacturer’s 

assistance can be excluded from best 

price only if the full value of the 

assistance is passed through to the 

patient/consumer. However, if any of 

the manufacturer-sponsored assistance 

is diverted to the plan, those amounts 

should be included when a 

manufacturer calculates its best price 

and AMP in certain cases. This final 

policy requires manufacturers to ensure 

the full value is passed on to the 

consumer, consistent with the 

regulation. 

Comment: A few commenters 

expressed concern about the impact of 

the proposals in this section on the 

ability of manufacturers to continue 

offering manufacturer assistance 

programs to individuals in the larger 

commercial market during the COVID– 

19 pandemic. These commenters stated 

that during the PHE and economic 

crisis, patients and families across the 

country would experience significant 

harm if the proposal is finalized and 

they lose access to medications. 

A few commenters stated the 

proposals are contrary to an Executive 

Order urging federal agencies to rescind, 

modify, waive, or provide exemptions 

from regulations and other requirements 

that may inhibit economic recovery, 

consistent with applicable law and with 

protection of the public health and 

safety. A few commenters stated that to 

be consistent with that Executive Order, 

CMS should reconsider and modify its 

current policies for PBM accumulator 

programs and to withdraw the current 

proposal that would impose new 

standards for exclusions of 

manufacturer-sponsored assistance 

amounts to patients in connection with 

Best Price and AMP determinations. 

Response: Since there is concern with 

the impact of this policy on 

manufacturer’s ability to provide 

assistance during the COVID–19 crisis, 

and manufacturers are also concerned 

that they may not be able to ensure their 

manufacturer assistance is going to the 

patient and not being passed through to 

the health plan via an electronic means 

right away, we are finalizing this rule, 

as proposed, but are delaying the 

effective date until January 1, 2023. This 

will give manufacturers time to 

implement a system that will ensure the 

full value of assistance under their 

manufacturer-sponsored assistance 

program is passed on to the patient, 

such as contracting with a third party 

vendor to track their assistance when 

provided at the point of sale, or 

changing the structure of their 

manufacturer-sponsored assistance 

programs to require patients pay for the 

drug first and then have the patient 

collect the rebate directly from the 

manufacturer (outside of the electronic 

claims process). Manufacturers may also 

choose to revise the manufacturersponsored assistance structure by 

requiring the patient to submit its claim 

for the manufacturer-sponsored 

assistance outside of the electronic 

claims process (this will allow a 

patient’s cost sharing at the point of sale 

to apply to the patient’s deductible 

because the pharmacy and PBM will be 

unable to identify that the patient used 

manufacturer-sponsored assistance. 

(3) Existence of Mechanisms To Assist 

Manufacturers With Compliance 

Comment: Several commenters stated 

that manufacturers do not have 

knowledge, visibility, or control over 

programs deployed by PBMs and health 

plans regarding the pass through of 

patient assistance, and suggested that 

CMS focus on imposing program 

efficiencies on plan managers and PBMs 

instead. Other commenters similarly 

stated that manufacturers are not party 

to arrangements between, nor do they 

receive consideration from, health plans 

and PBMs that withhold discounts from 

patients. 

Several commenters stated that the 

use of PBM Accumulator Programs is a 

post-transaction or downstream cost 

adjustment mechanism into which 

manufacturers have no insight, and 

pointed to CMS’ acknowledgement that 

even patients are often not aware when 

they are enrolled in such programs. 

Several commenters further stated that 

despite good faith efforts, they do not 

have access to data, plan policies, or an 

information exchange with enough 

specificity on PBM Accumulator 

Programs on a per-product, percustomer, per-quarter, or per-unit basis, 

and therefore, have no awareness of 

which patients are subject to PBM 

Accumulator Programs and which ones 

are not. Several commenters further 

stated that obtaining such data would 

create new administrative burdens, 

citing that documents are private, 

proprietary, or lengthy and complex. 

One commenter challenged 

manufacturer arguments that there 

would be too many barriers to knowing 

when their coupons are absorbed by 

PBM Accumulator Programs and 

excluded from deductibles, stating that 

manufacturers can contract with third 

parties to obtain such data. Several 

commenters stated that PBM 

Accumulator Programs only exist to 

interfere with or prevent manufacturersponsored assistance from being applied 

to the patient’s deductibles and 

maximum out-of-pocket costs from the 

consumer, and that instead of ensuring 

patient accessibility, accumulators 

penalize patients for using coupons to 

lower their costs. 

Response: We understand the 

concerns from the commenters that 

manufacturers may not currently have 

the ability to track their manufacturer 

assistance to ensure it is provided in full 

to the patient. However, we believe that 

the electronic prescription claims 

processing infrastructure that is 

currently in place can serve as a 

possible foundation for manufacturers 

to have the ability to ensure their 

manufacturer-sponsored assistance is 

going to the patient. 

Almost all prescriptions are 

electronically processed at the 

pharmacy, and when transmitted from 

the pharmacy, are routed through a 

switch to the corresponding PBM based 

on the information on the patient’s 

prescription card, such as BIN/PCN 

number. As noted, manufacturers do 

currently contract with switches and 

brokers that are electronically connected 

to this prescription claims processing 

‘‘highway’’, and which apply 

manufacturer-sponsored assistance on 

the manufacturers’ behalf at the pointof-service to reduce the amount that a 

patient might have to pay for a 

prescription. 

Manufacturers also have relationships 

with PBMs, given that they pay rebates 

and other price concessions for 

formulary placement on the PBMs’ 

formularies. Thus, the electronic and 

contractual infrastructure is in place for 

manufacturers to better understand how 

the PBMs are using the manufacturer 

assistance. We believe and have the 

expectation that PBMs will work with 

manufacturers to provide this 

information to the manufacturers to 

help them ensure that their assistance is 

passed though. 

Alternatively, manufacturers may 

consider redesigning assistance 

programs to require patients pay for the 

drug first and then have the patient 

collect the rebate directly from the 

manufacturer (outside of the electronic 

claims process). Revising the 

manufacturer-sponsored assistance 

structure by allowing the patient to pay 

first and bill the manufacturer for the 

assistance after the claim has been 

processed will guarantee patient’s cost 

sharing applies to the patient’s 

deductible and that the payer does not 

receive any price concession from the 

manufacturer-sponsored assistance. 

This manual approach also allows the 

patient at the point-of-sale to consider 

alternatives offered by their own health 

plan to the drug offered under the 

manufacturer-sponsored assistance 


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program, and therefore, supports the 

Administration’s quest for drug pricing 

transparency. 

Comment: Many commenters stated 

the proposals in this section are 

unworkable for manufacturers due to 

the lack of transparency in PBM 

accumulator programs and rather than 

finalizing these proposals, requested 

that CMS ban the use of PBM 

accumulator programs entirely, or at 

least prohibit their use when generic 

alternatives are not available. These 

commenters noted that this would 

directly accomplish CMS’ stated goals of 

ensuring that the full value of assistance 

be passed along to the patient. 

Several commenters also requested 

CMS to regulate cost sharing, 

transparency, standards for access to 

plan information, marketing, and benefit 

design as a means of protecting patients 

from the potential negative clinical and 

financial consequences of PBM 

accumulator programs. A few 

commenters stated that PBM 

accumulator programs should not be 

necessary since health plans have many 

guardrails in place to ensure that 

patients are incentivized to use lower 

cost medications such as prior 

authorization and step therapy. 

Response: While we appreciate the 

comments, this final rule only addresses 

situations when the value of 

manufacturer-sponsored assistance is 

not passed through to the patient and 

how that should be reflected by the 

manufacturer in the determination of 

best price and calculation of AMP in 

certain cases. The proposed rule 

requires manufacturers ensure that the 

full value of the manufacturersponsored assistance is passed on to the 

consumer and that the entity, in this 

case the health plan, does not receive 

any part of the value of the 

manufacturer assistance in order for that 

value to be excluded from best price and 

AMP. Banning PBM accumulator 

programs is outside the scope of this 

rule. 

Comment: One commenter expressed 

concern that the proposed changes to 

the best price determination might 

require health plans and PBMs to 

provide additional information to 

manufacturers beyond what they 

already provide and stated that this 

risks giving manufacturers greater 

market insight that could be leveraged 

to circumvent plan designs that 

encourage use of cost effective drugs in 

new ways, thereby increasing prices for 

patients and plans alike. One 

commenter recommended that CMS 

clarify that drug manufacturers, not 

PBMs and health plans, are solely 

responsible for correctly characterizing 

and accounting for amounts attributable 

to their manufacturer-sponsored 

assistance programs for the purposes of 

best price. 

Response: This rule does not require 

PBMs and health plans disclose or 

disseminate information they believe to 

be proprietary to manufacturers. 

Manufacturers that offer assistance only 

need to know if the patient is receiving 

the full value of the assistance for their 

drug (that is, the assistance is being 

fully counted towards the patient’s 

deductible and cost sharing). The 

mechanism by which the manufacturer 

determines whether or not the full value 

of its assistance is provided to the 

patient will be determined by the 

manufacturer, working with its brokers, 

the PBMs, and plans. 

(4) Viability of Manufacturer Assistance 

Programs With This Policy 

Comments: Several commenters 

expressed concern that the operational 

challenges to manufacturers would 

deter them from offering a broad range 

of manufacturer assistance currently 

exempt from best price reporting 

including coupons, drug discount card 

programs, patient rebate programs and 

copay assistance. 

Several commenters challenged CMS’ 

assertion that manufacturers can 

establish ‘‘parameters’’ or ‘‘coverage 

criteria’’ for ensuring the full value of 

assistance to patients’ subject to PBM 

accumulators, stating that it has no 

factual support. Several commenters 

requested further explanation or 

guardrails on such parameters or 

coverage criteria from CMS to ensure 

the provision has its intended effect 

while protecting people who rely on 

assistance. A few commenters expressed 

concern that the proposals in this 

section would also affect the frequency 

of government price reporting if 

manufacturers are expected to 

investigate on a plan by plan basis every 

suspicion that manufacturer assistance 

funds were being appropriated by a 

health plan. One commenter stated that 

even diligent checks and oversight 

cannot reveal every instance of plan or 

PBM capture or misappropriation of 

patient assistance funds due to the 

plan’s overall lack of transparency. 

Response: We do not agree that this 

regulation creates an insurmountable 

burden for manufacturers to comply 

with this new regulatory requirement. 

This rule does not place a federal 

mandate on health plans, insurers, and 

pharmacies to provide specific data or 

verify data to manufacturers relating to 

the operation of their manufacturersponsored assistance programs. 

However, our expectation is that 

manufacturers will work with their 

contracted patient assistance brokers, 

prescription claims processing switches, 

health plans and their contracted PBMs 

to ensure that they have the information 

necessary to comply with this regulatory 

requirement. 

The mechanism by which 

manufacturers will ensure that the full 

value of the manufacturer-sponsored 

assistance will be going to the patient 

will be determined by the manufacturer. 

However, we believe that one of the 

approaches that manufacturers may be 

able to use to capture information 

regarding how their manufacturersponsored assistance is used is through 

an electronic feedback mechanism at the 

point-of-sale, which appears to be in 

place at the present time. We believe 

that the PBMs will have to work with 

the manufacturers and their switches 

and brokers to assure that the 

manufacturers have the information 

necessary to comply with this regulatory 

requirement. 

Comment: A few commenters 

expressed concern that there is no way 

a manufacturer can certify to the 

accuracy of data obtained by health 

plans regarding PBM accumulator 

programs, subjecting manufacturers to 

penalties for false reporting or noncompliance with the MDRP 

requirements. One commenter stated 

that absent a federal mandate for health 

plans, insurers, and pharmacies to 

provide certified reports of the PBM 

accumulator transactions to 

manufacturers, manufacturers will not 

be able to provide accurate price 

reports. 

Response: We understand 

manufacturers concerns regarding 

certification of the data that they are 

required to report to comply with MDRP 

reporting requirements. Manufacturers 

currently certify data that are required 

to be reported to us regarding the 

calculation of AMP and best price. 

These calculations currently require that 

manufacturer sponsored assistance 

programs be passed through to the 

patient in full in order to be excluded 

from the calculation of best price and 

AMP in certain cases. Manufacturers 

should only be exempting 

manufacturer-sponsored assistance from 

their AMP and best price now if the 

value of its assistance passed onto the 

patient in full. If manufacturers are 

certifying their AMP and best price data 

at this time, which they are required to 

do each quarter, they should be doing so 

only with the knowledge that such their 

manufacturer-sponsored assistance is 

being passed through to the patient in 

compliance with applicable statutes and 

regulations. This final regulation 


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emphasizes the need for manufacturers 

to ensure this is happening. As we have 

stated, it is our expectation that 

manufacturers will work with the 

various components of the electronic 

prescription processing system, such as 

PBMs, switches, and brokers, among 

others, to obtain the information they 

need to accurately determine the pricing 

benchmarks they need to report each 

quarter. 

Comment: Several commenters 

requested that CMS not finalize its 

proposals in this section unless it 

establishes safe harbors that clearly 

identify actions that manufacturers can 

reasonably take to ensure they have met 

CMS standards. One commenter 

expressed concern that although 

manufacturers typically have terms and 

conditions governing their patient 

assistance programs, neither PBMs nor 

plans are a party to those terms and 

conditions. The commenter suggested 

that the only way for manufacturers to 

ensure that the full value of 

manufacturer copay assistance programs 

go exclusively to the patient is to create 

terms and conditions that prohibit a 

patient’s acceptance of manufacturer 

support when a PBM accumulator 

program applies. The commenter 

recommended that if CMS finalizes its 

proposal, it should expressly state that 

such a prohibition would be sufficient 

to meet the regulatory standard if 

manufacturers are held responsible for 

ensuring the full benefit of patient 

assistance passes to the patient. 

Response: We appreciate the 

commenter’s suggestion, but do not 

agree that shifting the burden to patients 

is necessary for a manufacturer to be 

able to determine that the full value of 

manufacturer assistance has been 

passed through to the patient. 

Prohibiting patients from accepting 

assistance unless they know that an 

accumulator program does not apply in 

their plan places undue burdens on 

patients. We do not agree that such a 

regulatory standard would satisfy the 

requirement that a manufacturer ensures 

that manufacturer sponsored patient 

assistance is passed through to the 

patient in full before it may be excluded 

from the calculation of best price or 

AMP in certain cases. Satisfying this 

regulatory requirement is the 

responsibility of the manufacturer, 

which is the entity that is regulated by 

CMS. The patient may not understand 

what an accumulator is, how it works, 

or whether their health plan’s PBM uses 

an accumulator. 

As noted in prior responses, we 

believe that there may be multiple ways 

that manufacturers will be able to meet 

these new regulatory requirements to 

ensure that manufacturer patient 

assistance is passed through fully to the 

patient or consumer, such as being able 

to electronically capture information 

regarding the value of manufacturersponsored assistance that is being 

passed through in PBM accumulator 

programs through some type of feedback 

mechanism at the point-of-sale, or by 

creating coverage criteria for the use of 

their patient assistance programs. 

Comment: One commenter stated that 

any regulatory language that discourages 

the use of PBM accumulator programs 

would have a significant impact on a 

payer’s ability to appropriately manage 

their prescription drug benefit and leads 

to increased costs when coupon and 

copay card amounts must apply to their 

members’ deductibles and out of pocket 

maximums for certain drugs. 

Response: The current regulation 

already requires that best price and 

AMP exclude manufacturer-sponsored 

assistance programs (copayment, patient 

refund/rebate, coupons, discount card 

programs) when the full value of the 

assistance is passed on to the consumer, 

and the pharmacy, agent or other entity 

does not receive any price concession. 

In the interest of program integrity, and 

to assure that the states receive the 

rebates that they are due, this final 

regulation is specifically requiring 

manufacturers to ensure compliance 

with that requirement that the 

manufacturer ensures the full value of 

the assistance is going to the patient. 

We understand that PBMs may be 

using this accumulator approach to steer 

patients away from drugs for which 

lower-cost generics are available, thus 

potentially impacting the payer’s ability 

to manage their prescription drug 

benefit if this proposed policy was 

adopted as final. In that regard, 

however, we understand that these 

programs are being used for both single 

source brands, as well as innovator off 

patent brands for which there are 

multiple lower cost generics on the 

market. However, there is no distinction 

made in the statute between single 

source and innovator multiple source 

drugs for which manufacturers would 

have to make a best price determination. 

That is, if a manufacturer’s price 

concession is being realized by a best 

price eligible entity, whether it is for a 

single source or innovator multiple 

source drug, then that price should be 

considered in the determination of best 

price. 

(5) Impact on Other Federal Programs 

and Policies 

Comment: One commenter expressed 

concern that the proposals in this 

section would increase the risk of 

manufacturers cutting off vital patient 

assistance. The commenter requested 

that we work with the HHS’ OIG to 

revisit rebate pass-through policies to 

ensure patients benefit directly from 

manufacturer discounts and rebates 

provided to PBMs. 

Response: We appreciate the 

comment, but do not agree that the final 

policy will have the effect of cutting off 

vital manufacturer assistance because 

manufacturers should only be 

exempting manufacturer-sponsored 

assistance from their AMP and best 

price now if the value of its assistance 

passed onto the patient in full. If 

manufacturers are certifying their AMP 

and best price data at this time, which 

they are required to do each quarter, 

they should be doing so only with the 

knowledge that such their 

manufacturer-sponsored assistance is 

being passed through to the patient in 

compliance with applicable statutes and 

regulations. This final regulation 

emphasizes the need for manufacturers 

to ensure this is happening. 

The request to work with HHS’ OIG 

to revisit other policies is outside the 

scope of this rule. 

Comment: Several commenters 

suggested in response to CMS’ concerns 

about the impacts of the growing use of 

PBM accumulator programs that CMS 

revert to the Notice of Benefit and 

Payment Parameters 2020 (NBPP 2020) 

proposals (85 FR 78572). Several 

commenters stated that CMS initially 

proposed to prohibit the use of PBM 

accumulator programs when the patient 

was prescribed a brand name 

medication for which a generic 

alternative was not available, and made 

clear that cost-sharing support for a 

brand drug on the formulary would 

always count toward the annual 

limitation on cost sharing. Several 

commenters noted that they preferred 

this earlier proposal, stating it would be 

simpler and more effective for creating 

guardrails to ensure provisions on costsharing assistance have their intended 

effect and to mitigate the harmful effects 

of such programs on patients. 

Several commenters also noted that 

the proposals conflict with the recent 

Notice of Benefit and Payment 

Parameters Rule for 2021 final rule (85 

FR 29164), that permitted, but did not 

require, issuers to count toward the 

annual limitation on cost sharing 

amounts paid toward reducing out ofpocket costs using any form of direct 

support offered by drug manufacturers 

to enrollees for specific prescription 

drugs. Several commenters stated that 

CMS did not provide that same degree 

of flexibility to plans in the proposed 

rule, and instead, preferred that 


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assistance programs are counted 

towards the patient’s deductible. One 

commenter stated that the differing 

approaches in the two regulations create 

operational complications for plans 

participating in both the Marketplace 

and Medicaid programs, as they have 

different requirements under each 

program as it relates to the treatment of 

patient assistance programs, and 

expressed concern this would lead to 

competitive disadvantages for plans that 

operate in both spaces. A few 

commenters stated that it is important 

for plans to have the flexibility to 

manage pharmaceutical copay 

assistance programs, as such programs 

often incentivize enrollees to utilize 

more expensive medications and stated 

that the proposals in this section 

undermine formulary and benefit design 

and results in higher health care costs. 

Response: The CMS Medicaid drug 

rebate program requires that 

manufacturers only exclude the value of 

manufacturer sponsored assistance to 

patients from the best price when the 

value of the assistance is passed through 

to the patient in full. This requirement 

is the focus of this rulemaking. In the 

Notice of Benefit and Payment 

Parameters Rule for 2021 final rule 

(hereinafter referred to as ‘‘2021 

NBPP’’), we permitted, to the extent 

consistent with state law, but did not 

require, issuers to count toward the 

annual limitation on cost sharing 

amounts paid toward reducing out-ofpocket costs using any form of direct 

support offered by drug manufacturers 

to enrollees for specific prescription 

drugs. 

The policies we are adopting in this 

rule require manufacturers ensure that 

the full value of their assistance 

programs is passed on to the consumer, 

and the entity, in this case the payer, 

does not receive any price concession. 

In cases when some of the value goes to 

the payer, manufacturers must include 

the value of the assistance in their 

determination of best price and AMP. 

In the 2021 NBPP, we stated that 

issuers and group health plans are 

allowed to continue longstanding 

policies with regard to how direct drug 

manufacturers’ support accrues towards 

an enrollee’s annual limitation on cost 

sharing. When the issuer does not 

permit the patient to realize the full 

benefit of the manufacturer’s assistance, 

manufacturers must not exclude such 

amounts from best price calculations. 

We suggest ways that manufacturers can 

become aware of such circumstance and 

thus include the assistance as a price 

concession in the manufacturer’s 

determination of best price and AMP. 

However, we are not prescribing a way 

that this should be done. The policies 

we are adopting in this final rule will 

require manufacturers to ensure that the 

full benefit of the assistance program 

goes exclusively to the patient in order 

for the manufacturer to exclude the 

manufacturer’s assistance from the 

calculation of best price and AMP. To 

allow manufacturers to develop 

mechanisms to obtain the information 

necessary to know whether the 

assistance has been in fact passed 

through to the patient, we are delaying 

the effective date for this requirement 

until January 1, 2023. 

Comment: A commenter noted that 

there is no inherent False Claims Act 

risk in price reporting by properly 

treating coupon amounts as price 

concessions. 

Response: The determination of 

whether a manufacturer is at risk of 

violating the False Claims Act is outside 

of the scope of this final rule. 

Comment: A few commenters noted 

the proposal to include manufacturersponsored assistance in reporting for 

AMP, unless the manufacturer ensures 

the full value is passed on to the patient, 

would result in lowering the AMP, 

which in turn would lower 

manufacturers’ rebate liability under the 

MDRP. These commenters stated that 

CMS’ proposal may encourage 

manufacturers to set higher list prices 

and offer coupons, rather than simply 

starting with a lower list price, while 

not having any greater rebate liability 

under the MDRP. One commenter 

provided an example of a drug priced at 

$10,000 with the offer of a $5,000 

coupon from the manufacturer, and 

stated that in order for that $5,000 to be 

deducted from AMP, the full value must 

be passed directly to the patient under 

the proposal. The commenter expressed 

concern that this could mean the $5,000 

manufacturer copay assistance must 

count toward the patient’s annual 

deductible and/or maximum out-ofpocket (MOOP) spending and that such 

a policy may incentivize utilization of 

higher-priced pharmaceutical products 

and increase overall health care 

spending. The commenter also noted 

that if the discount does have to apply 

towards the patient’s deductible or 

MOOP, then the drug manufacturer 

would have subverted the patient’s 

formulary and benefit design by 

skewing product choice and insulating 

the patient from financial liability 

intended to encourage responsible 

health care decision-making. The 

commenter suggested in contrast, if the 

manufacturer set the list price at $5,000, 

the net price would be the same as the 

higher priced drug as reduced by the 

coupon, and the AMP would be the 

same. 

A few commenters expressed concern 

that CMS’ proposal to ensure that the 

full value of manufacturer-sponsored 

assistance is passed through to the 

patient in order for it to be excluded 

from calculations of best price and AMP 

would have negative downstream effects 

on ASP and the 340B ceiling price. 

These commenters noted that CMS’ 

proposals in this section could result in 

the inclusion of patient assistance in 

ASP leading to a reduction in ASP and 

payer reimbursement in this rule 

acquisition costs. These commenters 

stated that in order for drug 

reimbursement rates not to fall below 

their costs, manufacturers would 

discontinue assistance programs and 

harm patients in need. 

One commenter stated that the ASP 

statute and regulations require that 103 

percent of AMP be substituted for the 

ordinary Part B payment rate (106 

percent of ASP) if the ASP for a drug 

exceeds AMP by 5 percent or more for 

2 consecutive quarters, meaning that a 

decline in AMP could cause such a 

substitution and thus reduce the Part B 

drug payment rate. The commenter 

stated that reducing a drug’s Part B 

payment rate (either through a decline 

in ASP or through a substitution of 103 

percent of AMP) could have detrimental 

effects on Medicare Part B providers and 

could hinder patient access to critical 

drugs. 

Response: We do not believe this final 

rule will have a significant impact on 

Part B drug payments. First, under 

section 1927(k)(1) of the Act, AMP is 

defined as the average price paid to 

manufacturers for a covered outpatient 

drug by wholesalers for drugs 

distributed to retail community 

pharmacies, as well as for drugs that 

retail pharmacies purchase directly from 

manufacturers. The calculation for AMP 

excludes payments to insurers as found 

at section 1927(k)(1)(B)(IV) of the Act, 

meaning these sales (with applicable 

exclusions) are not reflected in AMP. 

However, many Part B drugs can also 

be classified as ‘‘5i’’ drugs under the 

MDRP, that is, instilled, infused, 

injected, intraocular, and implanted 

drugs. The manufacturer’s calculation of 

the AMP for 5i drugs includes a broader 

set of manufacturer’s transactions, 

including sales, nominal price sales and 

associated discounts, rebates, payments 

or other financial transactions to 

insurers. Thus, the 5i AMP for a drug, 

may be impacted if the manufacturer 

fails to ensure that the full value of its 

manufacturer-sponsored assistance 

accrues to the patient and the insurer 

realizes a price concession. In 


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circumstances when the manufacturer 

does not assure that the manufacturer 

assistance is passed through to the 

patient in full, and thus has to be 

included in the calculation of 5i AMP 

for the drug, such a situation could 

possibly reduce 5i AMP and impact Part 

B reimbursement. 

However, since not all sales of a 

manufacturer’s 5i drug utilizes a 

manufacturer-sponsored assistance 

program, we do not believe the amount 

associated with the manufacturersponsored assistance (value of 

discounts, coupons, rebates) will impact 

5i AMP significantly to result in the 

substitution of AMP to the detriment of 

Medicare Part B providers and access to 

critical drugs. Thus, while it is possible 

that the inclusion of manufacturer 

assistance in the calculation of the 5i 

AMP for the drug could affect whether 

the Secretary makes such a substitution 

for the Part B drug, we do not believe 

it is likely. To the extent that 

manufacturer-sponsored assistance is 

passed fully through to the patient, 

there should be no reduction in the 

value of the 5i AMP. As a result, there 

should be no increased incidence of 

substituting 103 percent of AMP for 

ASP under section 1847A(d) of the Act, 

which creates an additional incentive 

for manufacturers to ensure that their 

assistance is being passed through fully 

to the patient. 

For 340B ceiling prices, such prices 

are calculated by subtracting the URA 

(URA = AMP ¥ best price when greater 

than the statutory rebate percentage 

based on drug classification) for a drug 

from the drug’s AMP, as described in 

section 340B(a)(1) of the Public Health 

Service Act. The URA is the Medicaid 

rebate amount for a quarter for a dosage 

form and strength of a drug. To the 

extent that manufacturer-sponsored 

assistance is passed through to the 

payer, rather than the patient, it could 

be counted in best price, which could 

affect the calculation of the ceiling 

price, as it is one component of the 

URA. The impact on 340B ceiling prices 

would depend on the inclusion of the 

manufacturer-sponsored assistance in 

the best price, and in some cases the 

AMP, for the drug for that quarter. 

Comment: One commenter supported 

the proposals and recommended that 

CMS conduct a regulatory impact 

analysis of the potential impacts on 

manufacturer pricing behavior before 

finalizing its proposal to adjust Best 

Price calculations to include 

manufacturer coupon payments to 

patients in copay PBM accumulator 

programs due to concerns about the 

unintended effect of manufacturers 

increasing their overall drug prices to 

compensate for the additional price 

concessions. 

Response: We do not believe this rule 

will have a major regulatory impact. 

More discussion can be found in section 

IV. of this final rule, the Regulatory 

Impact Analysis section. 

Comment: One commenter 

recommended as an alternative to the 

proposed changes to best price and 

AMP regarding manufacturer-sponsored 

assistance programs that CMS require 

insurance companies to remove any 

reference in their policies regarding 

cost-sharing assistance, and stated that 

the health plan should not have 

knowledge of transactions that are 

between the patient and manufacturer. 

Response: This comment requests 

action that is outside the scope of the 

rule. 

Comment: One commenter requested 

clarification on whether the Bona Fide 

Service Fee test would apply and 

whether CMS views the portion of the 

pharmacy reimbursement that is in 

excess of the wholesaler acquisition cost 

as a price concession to the pharmacy. 

The commenter requested CMS to 

clarify if, for example, if it is determined 

that payers typically reimburse 

pharmacies wholesale acquisition cost 

plus 12.5 percent, whether the 

pharmacy reimbursement for free good 

programs would be excluded from AMP 

and best price up to that threshold. 

Response: This comment is outside 

the scope of this rule. 

After consideration of the comments 

received, we are finalizing the proposed 

rule without modification, but delaying 

the effective date of this final policy. 

While the effective date of this rule is 

March 1, 2021, this final policy will not 

be effective until January 1, 2023. This 

will give manufacturers time to 

implement a system that helps them 

track their programs to ensure the 

manufacturer assistance is being passed 

through to the patient in full, and no 

other entity is receiving any price 

concessions. To be clear, we are 

providing a later effective date by which 

manufacturers will have to ensure that 

their cost sharing assistance is being 

passed through to the patient in full in 

order to exempt any such program 

assistance from the calculation of best 

price and AMP. 

E. Authorized Generic Drugs 

(§§ 447.502, 447.504, 447.506) 

The Continuing Appropriations Act of 

2020, and Health Extenders Act of 2019 

(Health Extenders Act) made changes to 

section 1927(k) of the Act, revising how 

manufacturers calculate the AMP for a 

COD for which the manufacturer 

permits an authorized generic to be 

sold. That is, the law requires that 

manufacturers that approve, allow, or 

otherwise permit any drug to be sold 

under the manufacturer’s own NDA 

approved under section 505(c) of the 

FFDCA are no longer permitted to 

include those sales of these drugs in the 

calculation of AMP. 

Specifically, section 1603 of Health 

Extenders Act, entitled ‘‘Excluding 

Authorized Generic Drugs from 

Calculation of Average Manufacturer 

Price for Purposes of the Medicaid Drug 

Rebate Program; Excluding 

Manufacturers from Definition of 

Wholesaler,’’ amended: 

• Section 1927(k)(1)(C) of the Act to 

replace the term ‘‘inclusion’’ with 

‘‘exclusion’’ in the title and further 

amended paragraph (k)(1)(C) to state 

that, in the case of a manufacturer that 

approves, allows, or otherwise permits 

any drug of the manufacturer to be sold 

under the manufacturer’s NDA 

approved under section 505(c) of the 

FFDCA, such term shall be exclusive of 

the average price paid for such drug by 

wholesalers for drugs distributed to 

retail community pharmacies (emphasis 

added). 

• The definition of wholesaler at 

section 1927(k)(11) of the Act to remove 

references to manufacturers from the 

definition of wholesaler. 

The amendments to section 1927 of 

the Act authorized under section 1603 

of the Health Extenders Act are effective 

October 1, 2019. Therefore, 

manufacturers must reflect the changes 

to the calculation of their AMPs for 

rebate periods beginning October 1, 

2019 (reported to CMS no later than 30 

days after the end of the rebate period). 

Furthermore, in accordance with 

§ 447.510(b), manufacturers have 12 

quarters from the quarter in which the 

data were due to revise AMP, if 

necessary. 

In accordance with the statutory 

amendments to section 1927(k)(1)(C) 

and (k)(11) of the Act described in this 

rule, we proposed to revise §§ 447.502, 

447.504, and 447.506 as they apply to 

AMP and authorized generic sales as 

follows: 

• We proposed to revise § 447.502 to 

change the definition of wholesaler to 

reflect the revised statutory definition of 

wholesaler at section 1927(k)(11) of the 

Act. Specifically, we proposed to revise 

the definition of wholesaler by 

removing any reference to 

‘‘manufacturer(s)’’ consistent with the 

changes to the definition of wholesaler 

made by section 1603(b) of the Health 

Extenders Act. We proposed the term 

‘‘wholesaler’’ to mean a drug wholesaler 

that is engaged in wholesale distribution 

of prescription drugs to retail 


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22https://www.medicaid.gov/prescription-drugs/ 

downloads/mfr-rel-112.pdf. 

community pharmacies, including but 

not limited to repackers, distributors, 

own-label distributors, private-label 

distributors, jobbers, brokers, 

warehouses (including distributor’s 

warehouses, chain drug warehouses, 

and wholesale drug warehouses), 

independent wholesale drug traders, 

and retail community pharmacies that 

conduct wholesale distributions. 

• Since the definition of wholesaler at 

section 1927(k)(11) of the Act no longer 

includes manufacturers, we further 

proposed to remove from the list of 

sales, nominal price sales, and 

associated discounts, rebates, payments 

or other financial transactions included 

in AMP, sales to other manufacturers 

who act as wholesalers for drugs 

distributed to retail community 

pharmacies at § 447.504(b)(2). The 

nominal price sales, and associated 

discounts, rebates, payments or other 

financial transactions included in AMP 

in accordance with § 447.504(d) (AMP 

for 5i drugs that are not generally 

dispensed through retail community 

pharmacies) do not change because the 

statute at section 1927(k)(1)(C) of the 

Act only speaks to authorized generic 

sales from the manufacturer to 

wholesalers that distribute to retail 

community pharmacies. 

• We proposed to revise § 447.506, 

which provides specific requirements to 

manufacturers regarding the treatment 

of authorized generic drug sales when 

determining AMP and best price. For 

purposes of those calculations, the 

current regulation defines primary 

manufacturer as the manufacturer that 

holds the NDA of the authorized generic 

drug and the secondary manufacturer as 

the manufacturer that is authorized by 

the primary manufacturer to sell the 

drug, but does not hold the NDA. 

The regulation further requires that 

the primary manufacturer must include 

in its calculation of AMP its sales of 

authorized generic drugs that have been 

sold or licensed to a secondary 

manufacturer, acting as a wholesaler for 

drugs distributed to retail community 

pharmacies, or when the primary 

manufacturer holding the NDA sells 

directly to a wholesaler. The Health 

Extenders Act revised the definition of 

wholesaler at section 1927(k)(11) of the 

Act by removing ‘‘manufacturer’’ and 

revised the determination of AMP at 

section 1927(k)(1)(C) of the Act by 

replacing the term ‘‘inclusion’’ with 

‘‘exclusion’’ in the title and further 

amended paragraph (C) to state, in the 

case of a manufacturer that approves, 

allows, or otherwise permits any drug of 

the manufacturer to be sold under the 

manufacturer’s NDA approved under 

section 505(c) of the FFDCA, such term 

shall be exclusive of the average price 

paid for such drug by wholesalers for 

drugs distributed to retail community 

pharmacies. Therefore, we proposed to 

revise § 447.506(b) to replace the word 

‘‘Inclusion’’ with ‘‘Exclusion’’ in the 

first sentence and replace the second 

sentence in its entirety to state that the 

primary manufacturer (as defined at 

§ 447.506(a)) must exclude from its 

calculation of AMP any sales of 

authorized generic drugs to wholesalers 

for drugs distributed to retail 

community pharmacies when reporting 

the AMP of the brand name drug. 

More specifically, we proposed that a 

separate AMP is determined for the 

brand drug, which shall be exclusive of 

any authorized generic sales, and a 

separate AMP shall be generated for the 

authorized generic. As discussed in the 

June 2020 proposed rule, typically, an 

authorized generic is a product that a 

manufacturer (primary manufacturer) 

allows another manufacturer (secondary 

manufacturer) to sell under the primary 

manufacturer’s FDA-approved NDA but 

under a different NDC number. The 

authorized generic is typically the 

primary manufacturer’s brand product 

offered at a lower price point. Primary 

manufacturers may sell the authorized 

generic product to the secondary 

manufacturer they are allowing to sell 

an authorized generic of their brand 

product, and such sales are commonly 

referred to as transfer sales. Primary 

manufacturers have included those 

transfer sales in the determination of the 

brand product’s AMP. Under the 

amendments made to section 1927 of 

the Act, a primary manufacturer that 

sells the authorized generic version of 

the brand drug to the secondary 

manufacturer can no longer include the 

price of the transfer sale of the 

authorized generic to the secondary 

manufacturer in its calculation of AMP 

for the brand product. The exclusion of 

these transfer sales from the primary 

manufacturer’s brand drug AMP will 

likely result in higher AMPs for the 

brand drugs and a potential increase to 

a manufacturer’s Medicaid drug rebates 

to states. To assist manufacturers, we 

provided guidance in Manufacturer 

Release #111 and Manufacture Release 

#112.22 In turn, we received inquiries as 

to what is meant by ‘‘In the case of a 

manufacturer that approves, allows, or 

otherwise permits any drug of the 

manufacturer to be sold under the 

manufacturer’s NDA approved under 

section 505(c) of the FFDCA, such term 

shall be exclusive of the average price 

paid for such drug by wholesalers for 

drugs distributed to retail community 

pharmacies.’’ Specifically, we received 

questions regarding when a primary 

manufacturer itself, or an affiliate of the 

manufacturer is also producing the 

authorized generic, and whether, such a 

case, constitutes ‘‘a case of a 

manufacturer that approves, allows, or 

otherwise permits’’ the drug to be sold 

under the manufacturer’s NDA, such 

that the exclusion applies. And if not, 

whether the primary manufacturer may 

include the average price paid for the 

authorized generic when calculating 

AMP for the brand drug. We believed 

that irrespective of the relationship 

between the manufacturer of the brand 

drug, and the manufacturer of the 

authorized generic, if the primary 

manufacturer ‘‘approves, allows, or 

otherwise permits’’ the drug to be sold 

under the primary manufacturer’s NDA, 

then the AMP for the brand should be 

calculated separately from (not include) 

the sales of the authorized generic. That 

is, it would not matter whether the 

manufacturer being approved, allowed, 

or otherwise permitted to sell the drug 

under the primary manufacturer’s NDA 

was the same, affiliated or nonaffiliated. 

Therefore, we interpret section 

1927(k)(1)(C) of the Act, which provides 

that in the case of a manufacturer that 

approves, allows, or otherwise permits 

any of its drugs to be sold under the 

same NDA, the AMP for that brand drug 

shall be exclusive of the average price 

paid for such drug by wholesalers for 

drugs distributed to retail community 

pharmacies, to mean a separate AMP 

should be calculated for each drug 

product—that is, one AMP for the brand 

drug, and one AMP for the authorized 

generic product, and the AMP for the 

brand drug should always exclude sales 

of the authorized generic product, 

including transfer sales of the brand 

name drug to the manufacturer of the 

authorized generic, as the definition of 

wholesaler no longer includes a 

manufacturer. Thus, a manufacturer’s 

sales to manufacturers who act as 

wholesalers can no longer be included 

in AMP. This includes a situation when 

it is the same manufacturer making both 

the brand name drug and authorized 

generic, or if the drugs are being 

manufactured by different, but affiliated 

manufacturers or even non-affiliated 

manufacturers. We proposed a policy 

that applies irrespective of a specific 

brand manufacturer’s sales arrangement. 

The amendments made by section 

1603 of the Health Extenders Act were 

effective October 1, 2019. Therefore, 

manufacturers are required to reflect the 

changes to the calculation of their AMPs 

for rebate periods beginning October 1, 


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2019 (reported to CMS no later than 30 

days after the end of the rebate period). 

Furthermore, in accordance with 

§ 447.510(b), manufacturers have 12 

quarters from the quarter in which the 

data were due to revise AMP, if 

necessary. 

We received the following comments 

on our proposed policies regarding 

authorized generic drugs (§§ 447.502, 

447.504, 447.506). 

Comment: A few commenters 

supported the proposed regulations 

regarding how manufacturers should 

calculate AMP for authorized generic 

drugs. Several commenters supported 

the proposed regulations that 

manufacturers must calculate separate 

AMPs for their brand drug and 

authorized generic. One commenter 

noted the proposed regulation should 

reduce manufacturer anti-competitive 

strategies and another noted the 

proposal successfully addresses one of 

the ways that authorized generics create 

marketplace distortions that hurt 

patients. One commenter supported the 

proposed approach that this exclusion 

apply irrespective of whether the 

authorized generic is sold by an 

affiliated or unaffiliated manufacturer, 

or the nature of the sales arrangement. 

Response: We appreciate the 

commenters support, and are finalizing 

the proposals consistent with the 

changes made by the Continuing 

Appropriations Act of 2020, and Health 

Extenders Act of 2019 (Health Extenders 

Act) to section 1927(k) of the Act with 

one modification relative to the 

regulatory definition of secondary 

manufacturer. 

Comment: A few commenters 

supported the exclusion of sales, 

nominal price sales, and associated 

discounts, rebates, payments, or other 

financial transactions included in AMP 

from other manufacturers who act as 

wholesalers for drugs distributed to 

retail community pharmacies. 

Response: We appreciate the support 

for this proposal. Since the definition of 

wholesaler at section 1927(k)(11) of the 

Act no longer includes manufacturers, 

we are removing from the list of sales, 

nominal price sales, and associated 

discounts, rebates, payments or other 

financial transactions included in AMP, 

sales to other manufacturers who act as 

wholesalers for drugs distributed to 

retail community pharmacies at 

§ 447.504(b)(2). The nominal price sales, 

and associated discounts, rebates, 

payments or other financial transactions 

included in AMP in accordance with 

§ 447.504(d) (AMP for 5i drugs that are 

not generally dispensed through retail 

community pharmacies) do not change 

because the statute at section 

1927(k)(1)(C) of the Act only speaks to 

authorized generic sales from the 

manufacturer to wholesalers that 

distribute to retail community 

pharmacies. 

Comment: A few commenters did not 

support the proposed regulations that 

would prohibit manufacturers from 

blending the brand name AMP and the 

AMP of the authorized generic in 

certain situations. For example, one 

commenter stated that the Health 

Extenders Act that created the statutory 

prohibition of the blending of brand 

name and authorized generic AMPs did 

not amend the Medicaid drug rebate 

statute provisions which require the 

calculation of Medicaid URAs at the 

drug, dosage form, and strength level. 

As a result, because the brand product 

and authorized generic share the same 

drug, dosage form, and strength, the 

commenter believes that the provision 

regarding the calculation of the AMP at 

the drug, dosage form, and strength 

level also supports blending of AMPs 

where the same manufacturer sells both. 

(The URA for a dosage form and 

strength of drug for a quarter is 

calculated using the drug’s AMP as one 

of the inputs.) 

Another commenter did not support 

the proposed regulations requiring the 

calculation of separate AMPs in certain 

situations, and stated the statutory AMP 

exclusion for authorized generics 

applies only in cases when a 

manufacturer ‘‘approves, allows, or 

otherwise permits any drug of the 

manufacturer to be sold under the 

manufacturer’s [NDA]’’. The commenter 

further indicated that as a result, the 

requirement to calculate separate AMPs 

cannot apply where there is no 

secondary manufacturer. A few 

commenters did not support CMS’ 

proposal to exclude sales of authorized 

generics from the AMP calculation of 

the brand drug when these products are 

sold without the involvement of a 

‘‘secondary’’ manufacturer, and stated 

that the text and history of the Medicaid 

rebate statute support blending of the 

AMPs in this circumstance. 

Response: We do not agree with the 

commenters that the statutory text 

continues to support the blending of the 

authorized generic sales and brand sales 

when calculating AMP in certain 

situations. As described above, and in 

Manufacturer Releases #111 and #112, 

section 1603 of the Health Extenders 

Act made changes to section 1927(k) of 

the Act, revising how manufacturers 

calculate the AMP for a COD for which 

the manufacturer approves, allows or 

otherwise permits the COD of the 

manufacturer to be sold under the 

manufacturer’s NDA. That is, 

manufacturers that approve, allow, or 

otherwise permit any drug to be sold 

under the manufacturer’s own NDA 

approved under section 505(c) of the 

FFDCA shall no longer include those 

sales in the calculation of the brand 

name AMP, which includes authorized 

generic sales. 

We have also interpreted this 

provision regarding the inability of 

manufacturers to further blend AMPs to 

apply beyond authorized generic cases 

to other situations in which a 

manufacturer approves, allows or 

otherwise permits the COD to be sold 

under the manufacturers’ NDA. For 

example, with respect to a 

manufacturer’s importation of drugs 

under Section 801 of the FFDCA, we 

issued manufacturer release #114 

guidance on September 25, 2020, in 

which we interpreted that when a 

manufacturer approves, allows or 

otherwise permits a drug imported 

under an NDA to also be sold under the 

same NDA, then the manufacturer 

would not be permitted to blend the 

AMPs of the drug sold in the United 

States, with the drug that the 

manufacturer imports which is sold 

under the same NDA. 

With regard to comments suggesting 

the exclusion not being applicable to 

situations where both the brand drug 

and authorized generic drug are 

approved, allowed, or permitted to sold 

under the same NDA by the ‘‘same 

manufacturer’’, irrespective of the 

relationship between the manufacturer 

of the brand drug, and the entity 

permitted to sell the authorized generic, 

if the primary manufacturer ‘‘approves, 

allows, or otherwise permits’’ any drug 

to be sold under the primary 

manufacturer’s NDA, then the AMP for 

the brand should be calculated 

separately from (exclude) the sales of 

the other drug or drugs that are being 

sold under that NDA, in this case, an 

authorized generic. That is, it would not 

matter whether the manufacturer or 

entity (that is, the secondary 

manufacturer) being approved, allowed, 

or otherwise permitted to sell the drug 

under the primary manufacturer’s NDA 

was the same, affiliated or non-affiliated 

from the primary manufacturer as 

explained further below. 

As discussed in the proposed rule (85 

FR 37300), after we issued Manufacturer 

Releases #111 and #112, we received 

inquiries as to what is meant by ‘‘In the 

case of a manufacturer that approves, 

allows, or otherwise permits any drug of 

the manufacturer to be sold under the 

manufacturer’s NDA approved under 

section 505(c) of the FFDCA, such term 

shall be exclusive of the average price 

paid for such drug by wholesalers for 


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drugs distributed to retail community 

pharmacies.’’ Specifically, we received 

questions regarding when a primary 

manufacturer itself, or an affiliate of the 

manufacturer is also producing the 

authorized generic, and whether, such a 

case, constitutes ‘‘a case of a 

manufacturer that approves, allows, or 

otherwise permits’’ the drug to be sold 

under the manufacturer’s NDA, such 

that the exclusion applies. And if not, 

whether the primary manufacturer may 

include the average price paid for the 

authorized generic when calculating 

AMP for the brand drug. 

In Manufacturer release #112, we 

advised that, until we issue a regulation 

in final, when a manufacturer approves, 

allows, or otherwise permits any of its 

drugs to be sold under the same NDA, 

a separate AMP should be calculated for 

each drug product—that is, one AMP for 

the brand drug, and one AMP for the 

authorized generic product, and the 

AMP for the brand drug should exclude 

sales of the authorized generic product. 

We also advised that such situation 

includes both when a manufacturer is 

the same for both the brand drug and 

authorized generic version and the 

situation when the drugs are being 

manufactured by different, but affiliated 

companies. For example, the 

manufacturer making the authorized 

generic might be a subsidiary of the 

brand name company, or the two might 

simply have a corporate or business 

relationship. 

To support this view, we note that the 

title of section 1603 of the Health 

Extenders Act amending section 

1927(k)(1) and (k)(11) of the Act is 

‘‘Excluding Authorized Generic Drugs 

from Calculation of Average 

Manufacturer Price for Purposes of the 

Medicaid Drug Rebate Program,’’ and 

section 1603(a)(1) specifically amended 

the statutory provision at section 

1927(k)(1) by striking ‘‘INCLUSION’’ 

and ‘‘inclusive’’ and inserting 

‘‘EXCLUSION’’ and ‘‘exclusive.’’ The 

statute did not previously, nor was it 

later amended to distinguish among the 

different business or corporate 

relationships, if any, that might exist 

among the manufacturer of the brand 

name drug and the entity that that 

manufacturer approves, allows, or 

otherwise permits to sell such drug 

under the same NDA. It simply 

indicates that the AMP calculation for 

the brand drug shall be exclusive of 

(shall not include) the average price 

paid (sales) of the drug the manufacturer 

is permitting to be sold under its NDA. 

For these reasons, we are also 

finalizing this rule by not distinguishing 

among the business or corporate 

relationships between the companies, 

such as whether they are subsidiaries, 

affiliates, or have corporate 

relationships. However, based on the 

comments we received, we are 

amending the current definition of 

secondary manufacturer found at 

§ 447.506(a) to clarify this point, and are 

removing the phrase at the end of the 

definition, ‘‘but does not hold the 

NDA.’’ As noted above, the statute 

neither before amendment or after 

distinguishes among the different 

business or corporate relationships, if 

any, that might exist among the 

manufacturer of the brand name drug 

and the entity that that manufacturer 

approves, allows, or otherwise permits 

to sell such drug under the same NDA. 

And this is likely because in some cases, 

the primary and secondary 

manufacturers are one in the same; that 

is, one manufacturer who holds the 

NDA makes and markets both the brand 

name drug and the authorized generic. 

This regulatory modification will clarify 

that regardless of the relationship that 

exists between the primary and 

secondary manufacturer, that the sales 

of the authorized generic cannot be 

blended with the sales of the brand 

name drug. 

Comment: One commenter stated that 

the AMP for the brand product should 

still include the price of the authorized 

generic drug as removing the authorized 

generic will lead to increasing the price 

of the brand name medication. 

Response: We did not make any 

proposals related to drug launch prices, 

have no control over how those are set, 

and remind the commenter that there is 

the inflation rebate penalty in the 

Medicaid drug rebate program for 

manufacturers that increase prices faster 

than inflation (CPI–U) on their drugs. 

This should serve as a disincentive to 

manufacturers to increase prices faster 

than inflation. 

Moreover, we do not believe that the 

exclusion of the sales of the authorized 

generic from the calculation of the 

brand AMP should increase the price of 

the brand name drug, as the calculation 

of the AMP by a manufacturer is done 

solely to report the AMP value used by 

CMS to calculate the unit rebate amount 

for states to bill manufacturers for 

rebates. While the AMP of the brand 

name drug will likely increase if the 

manufacturer can no longer include the 

sales of the authorized generic, it should 

not affect the sales price of the brand 

name drug in the marketplace. 

For these reasons, we are finalizing 

the policy that manufacturers cannot 

blend the sales of the AMPs for the 

brand name drug sold under the NDA 

and the sales of any other drug sold 

under the NDA, regardless of the 

relationships between the entities 

selling the drugs. 

After consideration of the comments 

received, we are finalizing our proposals 

at §§ 447.502, 447.504 and 447.506 as 

modified, which includes a clarifying 

revision to the definition of secondary 

manufacturer as noted above. 

F. Medicaid Drug Rebates (MDR) 

(§ 447.509) 

Manufacturers that participate in the 

MDRP are required to pay rebates for 

CODs that are dispensed to Medicaid 

patients. The rebates are calculated 

based on formulas described in section 

1927(c) of the Act. As described in 

section I. of the June 2020 proposed 

rule, the BBA 2015 made revisions to 

the statutory rebate formula for CODs 

other than single source or innovator 

multiple source drugs. That is, section 

602 of BBA 2015, amended section 

1927(c)(3) of the Act to require that 

manufacturers pay additional rebates on 

their CODs other than single source or 

innovator multiple source drugs (noninnovator multiple source (N) drugs) 

when the AMP of the N drug increases 

at a rate that exceeds the rate of 

inflation. The amendments made by 

section 602 of BBA 2015 were effective 

beginning with the January 1, 2017 

quarter (that is, first quarter of 2017). 

The implementation of these 

amendments was discussed in 

Manufacturer Release 97 and 

Manufacturer Release 101. 

Prior to the enactment of BBA 2015, 

the basic quarterly URA calculation for 

N drugs was equal to 13 percent of a 

drug’s quarterly AMP. However, section 

602(a) of BBA 2015 amended section 

1927(c)(3) of the Act by adding an 

inflation-based additional rebate 

requirement to the URA for N drugs, 

which is similar to the additional rebate 

applied to single source (S) and 

innovator multiple source (I) drugs. 

To calculate the additional rebate 

portion of the URA calculation for N 

drugs, section 602(a) of BBA 2015 

amended section 1927 of the Act to 

establish a base AMP or base date AMP 

value for N drugs based, in part, upon 

each N drug’s market date. In general, 

for N drugs marketed on or before April 

1, 2013, the base date AMP is equal to 

the third quarter of 2014 and the Base 

CPI–U is the CPI–U for September 2014. 

For N drugs marketed after April 1, 

2013, the base date AMP is equal to the 

AMP for the fifth full calendar quarter 

after which the drug is marketed as a 

drug other than a single source or 

innovator multiple source drug and the 

base CPI–U is equal to the CPI–U for the 

last month of the base AMP quarter. 


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We proposed to revise § 447.509 to 

codify the rebate formulas in regulation. 

Specifically, we proposed to revise 

paragraph (a)(6) to distinguish the basic 

rebate for N drugs from this additional 

rebate. In addition, we proposed to add 

paragraph (a)(7) to expressly include the 

additional rebate calculation for N 

drugs. We proposed that in addition to 

the basic rebate under paragraph (a)(6), 

for each dosage form and strength of a 

N drug, the rebate amount will increase 

by an amount equal to the product of 

the following: The total number of units 

of such dosage form and strength paid 

for under the state plan in the rebate 

period, and the amount, if any, by 

which the AMP for the dosage form and 

strength of the drug for the period 

exceeds the base date AMP for such 

dosage form and strength, increased by 

the percentage by which the consumer 

price index for all urban consumers 

(United States city average) for the 

month before the month in which the 

rebate period begins exceeds such index 

associated with the base date AMP of 

the drug. We also proposed to add 

paragraph (a)(8) to capture that the total 

rebate amount for noninnovator 

multiple source drugs is equal to the 

basic rebate amount plus the additional 

rebate amount, if any. 

In addition to the proposed regulatory 

changes related to section 602 of BBA 

2015 amendments noted in this rule, we 

also proposed to amend § 447.509 at: 

• Paragraph (a)(5) to specify that in 

no case will the total rebate amount 

exceed 100 percent of the AMP of the 

single source or innovator multiple 

source drug; and 

• By adding paragraph (a)(9) to 

specify that in no case will the total 

rebate amount exceed 100 percent of the 

AMP of the noninnovator multiple 

source drug. 

• We also added to paragraph 

(a)(7)(ii)(B) to state that the base date 

AMP has the meaning of AMP set forth 

in section 1927(c)(2)(A)(ii)(II), (c)(2)(B) 

and (c)(3)(C) of the Act as the regulation 

did not provide a specific definition of 

base date AMP for calculating the 

additional rebate. We believe it is 

reasonable to include this in regulation 

to provide further clarity for 

manufacturers and states with regard to 

the calculation of the additional rebate, 

and to ensure the appropriate product 

data and pricing information is 

submitted to CMS. 

We received the following comments 

on Medicaid drug rebates (MDR) 

(§ 447.509). 

Comment: A few commenters 

supported the proposed changes to the 

calculation for non-innovator multiple 

source drugs, single source drugs, or 

innovator multiple source drugs to 

ensure manufacturers of authorized 

generic drugs do not take advantage of 

monopoly situations, and increase 

prices beyond the rate of inflation. 

Response: The proposed changes were 

made to conform to changes made by 

section 602 of the BBA 2015 to section 

1927(c)(3) of the Act which requires that 

manufacturers pay additional rebates on 

their non-innovator multiple source (N) 

drugs if the AMPs of an N drug increase 

at a rate that exceeds the rate of 

inflation. It is not clear what the 

commenter meant by the statement that 

these proposed changes would ensure 

that manufacturers of authorized 

generics do not take advantage of 

monopoly situations. Authorized 

generics are considered innovator 

multiple source drugs as they are sold 

under a manufacturer’s NDA, and an 

existing inflation penalty applies to 

such drugs under section 1927(c)(2) of 

the Act. 

Comment: Several commenters do not 

support the proposed changes to the 

inflation rebate or the inclusion of an 

additional rebate for N drugs. A few 

commenters noted the additional rebate 

for non-innovators multiple source 

drugs (N drugs) would be a disincentive 

to manufacturers from participating in 

Medicaid and 340B programs. 

Response: While we appreciate the 

commenters expressing their concerns, 

the proposed revisions to § 447.509, 

conform with the changes made by 

section 602 of the BBA 2015 to section 

1927(c)(3) of the Act, which require that 

manufacturers pay additional rebates on 

their N drugs if the AMPs of an N drug 

increase at a rate that exceeds the rate 

of inflation. This provision of BBA 2015 

was effective beginning with the January 

1, 2017 quarter, or in other words, 

beginning with the URAs that are 

calculated for the January 1, 2017 

quarter. Since that date, we have not 

noticed a decline in manufacturers 

participating in either the Medicaid 

program or 340B program. 

Comment: One commenter noted the 

proposed methodology for calculating 

the basic rebate and the additional 

rebate could result in a ‘‘double 

discount’’ in situations where products 

with a price increase that is greater than 

inflation would also now have to pay an 

inflation rebate. This commenter 

recommended rather than add the two 

rebate components together, a 

manufacturer should be permitted to 

sum the total net of the duplicate 

portion of the rebates. 

Response: We believe the commenter 

is noting that the basic rebate for a noninnovator multiple source drug may 

already reflect a higher rebate due to 

price increases on that non-innovator 

drug resulting in a higher AMP and 

therefore, the additional rebate 

duplicates, to some extent, an already 

increased basic rebate (due to the 

increase in the AMP). There is no 

statutory basis to allow for the type of 

rebate calculation proposal that the 

commenter is suggesting. We note that 

section 602 of the BBA of 2015 added 

section 1927(c)(3) of the Act, which 

requires that manufacturers pay, in 

addition to a basic rebate, an additional 

rebate for their N drugs if the AMPs of 

an N drug increase at a rate that exceeds 

the rate of inflation. This provision of 

BBA 2015 was effective beginning with 

the January 1, 2017 quarter, or in other 

words, beginning with the URAs that 

are calculated for the January 1, 2017 

quarter. 

After consideration of the public 

comments received, we are finalizing 

the proposed changes (described in this 

section (II.F. of this final rule)) made to 

§ 447.509 without modification. 

Additionally, please refer to section 

II.C.2. of this final rule for a description 

of other changes we are finalizing to 

§ 447.509 as they relate to drugs that are 

line extensions. 

G. Requirements for Manufacturers 

(§ 447.510) 

In accordance with section 1927(b)(3) 

of the Act and the terms of the NDRA, 

manufacturers are required to report 

pricing information to CMS on a timely 

basis or face a penalty. Current 

regulations at § 447.510 implement the 

manufacturer price reporting 

requirements including the timing of 

revisions to pricing data. The current 

regulation at § 447.510(b)(1) requires 

that the revision to pricing data be made 

within the 12 quarters from which the 

data were due, unless it meets one of the 

exceptions in paragraphs (b)(1)(i) 

through (v). 

As discussed in section II.B. of the 

June 2020 proposed rule, VBP has 

evolved into a possible option for states 

and manufacturers to help manage drug 

expenditures. Many VBP arrangements 

or pay-over-time models may be better 

suited for periods longer than 12 

quarters, and manufacturers entering 

into such arrangements may need to 

adjust AMPs and best prices beyond the 

12 quarters because the evidence-based 

or outcomes-based measures are being 

measured beyond a period of 12 

quarters or a final installment payment 

is being made outside of the 12 quarters. 

With this evolution it has become 

apparent that certain manufacturer 

reporting requirements could be viewed 

as an impediment to adopting VBP 

arrangements. For instance, under 


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current regulations, a manufacturer 

would not be able to account for any 

adjustments to prices that may occur 

outside of the 12 quarters because of 

VBP arrangements (or even pay-overtime models), as required. 

The definition of AMP at section 

1927(k)(1)(B)(ii) of the Act, indicates 

that any other discounts, rebates, 

payments or other financial transactions 

that are received by, paid by, or passed 

through to retail community pharmacies 

shall be included in AMP for a COD. 

The special rules in section 

1927(c)(1)(C)(ii) of the Act define best 

price to be inclusive of cash discounts, 

free goods that are contingent on any 

purchase requirement, volume 

discounts and rebates. Since 

manufacturers are required to report 

AMP and best price that capture these 

statutory required financial transactions, 

including such financial transactions 

(for example, rebates, incremental 

payments) that are a result of VBP 

arrangements or pay-over-time models, 

and such pricing structures may be 

designed to result in transactions taking 

place outside of the 3-year window, we 

proposed to add § 447.510(b)(1)(vi) to 

specify an additional exception to the 

12-quarter rule to account for the unique 

nature of VBP arrangements and payover-time models. Specifically, we 

proposed that the manufacturer may 

make changes outside of the 12-quarter 

rule as a result of a VBP arrangement 

when the outcome must be evaluated 

outside of this 12-quarter period. 

We received the following comments 

on requirements for manufacturers 

(§ 447.510). 

Comment: Many commenters 

supported the extension of the price 

reporting period for VBP arrangements 

beyond the current 12-quarter 

restatement window. One commenter 

noted this will improve the reporting of 

net prices. Another commenter 

supported the extension because they 

noted limiting an outcome measurement 

to less than the historical 12-quarter 

maximum, regardless of the clinical data 

associated with a given treatment, might 

jeopardize the usefulness of a VBP 

arrangement. 

Response: We appreciate the support 

for the exception to the 12-quarter 

restatement window and are finalizing 

the regulation at § 447.510(b)(1)(vi) as 

proposed. 

Comment: Several commenters 

provided recommendations for allowing 

adjustments outside of the 12-quarter 

window or requested further 

modifications to CMS’ proposals in this 

section. Specifically, commenters 

recommended that CMS consider a 

specific length of the time for the 

restatement period of AMP and best 

price for therapies subject to VBP 

arrangements, such as 5 or 10 years. In 

addition, commenters requested that 

CMS address the impact of the amended 

restatement period on the traditional 

AMP smoothing methodology. Finally 

some commenters requested that 

manufacturers be able to make such 

restatements in the same way that they 

can make restatements within the 12- 

quarter window, that is, without any 

need for approval by CMS. 

Response: This final regulation adds 

an exception to the 12-quarter rule that 

allows a manufacturer to request 

revisions to price reporting (including 

quarterly AMP and best price reporting) 

that exceed 12 quarters from which the 

data was due when the change is a 

result of a VBP arrangement and the 

outcome must be evaluated outside of 

the 12-quarter period. We do not agree 

with the suggestion that we consider 

adding a specific length of time for the 

applicability of the exception outside of 

the 12 quarters, because our intent is to 

provide necessary flexibilities 

understanding the various VBP 

arrangements will be designed with 

different protocols, outcomes and 

timeframes. 

For example, there may be a 5-year lag 

time between the time that a drug is first 

administered to a patient and the 

evaluation period for that patient’s VBP 

arrangement. After that, there may be 

several years of prior period pricing 

adjustments based on the data that are 

generated from VBP program’s patient 

results which may affect the pricing 

data being reported that had already 

been reported for the initial 5-year 

period. Manufacturers that use a VBPbased bundled sales approach would 

also be expected to revise their pricing 

metrics as additional data are compiled 

from the VBP arrangement, and make 

adjustments to AMP and BP, with the 

ability to make such adjustments 

outside the 12-quarter reporting 

window. 

We also note that there are currently 

five exceptions listed at § 447.510(b) to 

the 12 quarter price reporting rule, and 

none of these exceptions are time 

limited. For example, there are currently 

no time limits on manufacturer requests 

for changes related to the initial 

submission of a product 

(§ 447.510(b)(1)(ii)) or due to a change in 

drug category or market date 

(§ 447.510(b)(1)(i)). We do not see a 

need, therefore, to place a time limit of 

manufacturer reporting outside the 12 

quarter rule regarding VBP 

arrangements. 

We would implement this new 

exception to the 12-quarter rule in the 

same manner that we are currently 

processing requests from manufacturers 

for other exceptions. That is, the 

manufacturer would submit its request 

to us to describe the change they want 

to make with supporting 

documentation. If the change is 

permissible, we will notify the 

manufacturer that they can make the 

change in the current reporting system, 

and then the manufacturer would be 

able to certify that change. 

With respect to permitting revisions 

to the pricing data under a VBP 

arrangement, the regulations require 

manufacturers to request, and for the 

agency to determine whether or not to 

‘‘reopen’’ the MDRP for revised pricing 

outside of the 12 quarters based upon 

the manufacturer’s request and whether 

it meets an exception at 

§ 447.510(b)(1)(i) through (v). The same 

practice will apply to this new 

exception at § 447.510(b)(1)(vi). We will 

not permit manufacturers to restate 

pricing data in excess of 12 quarters in 

MDRP without the manufacturer 

submitting its request to us. 

Comment: A few commenters 

requested that CMS consider the 

implications of changes to drug pricing 

information outside the 12-quarter 

period on the MDRP and 340B ceiling 

price calculations. 

Response: Price calculations for 340B 

drugs are made by the Health Resources 

Services Administration (HRSA) and are 

based on the pricing data reported to the 

MDRP each calendar quarter. In 

accordance with section 340B(a)(1) of 

the Public Health Service Act, the 340B 

Ceiling Price and Civil Monetary 

Penalty final rule defines the 340B 

ceiling price as calculated as the AMP 

from the preceding calendar quarter for 

the smallest unit of measure minus the 

URA and will be calculated using six 

decimal places (82 FR 1210). Any 

retrospective changes to MDRP pricing 

metrics also affect 340B ceiling prices as 

the inputs to the ceiling prices would 

also change. Thus, any changes to 

MDRP pricing metrics, whether within 

the 12-quarter adjustment period or 

outside the 12-quarter adjustment 

period could affect the 340B ceiling 

price for the calendar quarter. We 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. 

Comment: A commenter noted the 

proposal could create a misalignment of 

discounts and sales volumes in the AMP 

calculation due to the longer time frame 

over which patient outcomes will be 

measured and rebates paid. This 

commenter recommended CMS engage 


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commenters to discuss potential 

solutions to execute through future 

guidance or rulemaking on a parallel 

time frame to the effective date of this 

final rule. 

Response: We thank the commenter 

for this important observation. It is not 

clear the extent to which 

‘‘misalignments’’ may occur within 

AMP calculation as a result of discounts 

and sales volume under a VBP 

approach. However, we expect that the 

ability of manufacturers to request an 

adjustment of pricing metrics outside 

the 12 quarter window for VBP-related 

changes will give manufacturers and 

payers more flexibility in structuring 

VBP arrangements as they would know 

that there could be a longer timeframe 

for evaluation. This could encourage the 

use of these programs, which would 

help increase their use in commercial 

plans, as well as their use by Medicaid. 

Comment: A few commenters 

requested clarification on specific 

operational details and implications on 

the VBP arrangements exception 

provided in § 447.510(b)(1)(vi). These 

commenters requested that CMS should 

consider that out-year payments in VBP 

approaches do not need to adjust for the 

time value of money and that the 

restatement of Best Price should not be 

necessary as part of a VBP arrangement 

since the Best Price would have already 

been reported. 

A few commenters requested 

clarification of how the proposal would 

address pay-over-time arrangements. 

One commenter requested clarification 

on how the proposal would allow for 

pay-over-time arrangements, 

specifically, when resetting Best Price 

more than three years after 

administration of the drug, and what 

would qualify as the product’s Best 

Price until the benchmark is met and 

Best Price is reset, especially as each 

installment payment may stretch across 

multiple rebate reporting periods and 

recommended CMS allow for an annuity 

payment in the case of one-time 

therapies/gene-therapies. 

Response: We recognize that it will be 

a challenge for CMS to evaluate and 

address the impact of every VBP 

arrangement on government pricing as 

part of this final rule because there is no 

standard or ‘‘one-size’’ fits all approach 

to manufacturer VBP arrangements. For 

example, manufacturers may pay 

adjustments to payers in the form of 

rebates if a drug does not work as 

intended, choose to require payers to 

pay in installments as the drug meets 

intended outcomes, or pay premiums to 

third parties to ‘‘warrant’’ their drug 

products, which would allow a 

manufacturer to pay the health care 

costs incurred by a payer as a result of 

the failure of a particular therapy. All 

these approaches (and more) may 

require different calculations to 

determining best price and AMP, and 

reporting these figures in MDRP. 

We note that some manufacturers that 

are using a ‘‘pay-over-time’’ model that 

does not involve a VBP component may 

contract with an intermediary to receive 

full payment for the drug and thus 

report it in the manufacturer’s AMP 

when reporting their pricing metrics. 

That is, the payer makes ‘‘pay-overtime’’ payments to the intermediary, 

and the intermediary makes full 

payment to the manufacturer so the 

manufacturer can report the full sale in 

the quarter in which the drug was 

administered or dispensed so as not to 

affect their AMP reporting. The ‘‘best 

price’’ for the quarter would also be 

reported. However, to the extent that 

future rebates or discounts adjust the 

AMP or ‘‘best price’’, adjustments 

would have to be reported as they 

would under a non pay-over-time 

model. Finally, because pay-over-time 

arrangements do not necessarily have an 

outcomes component and simply allow 

payers to pay for high cost drugs over 

a period of time, these types of payover-time arrangements would not be 

subject to the exception at 

§ 447.510(b)(1)(vi) because there is no 

outcomes related to the pay-over-time 

payments, and the exception applies 

only in cases when the VBP 

arrangement involves an outcome that 

must be evaluated outside of the 12- 

quarter period. 

We will need to remain flexible as 

additional VBP design structures come 

to the market. This being the case, we 

will consider issuing operational 

guidance to assist manufacturers in the 

reporting of AMP and best price and to 

the extent there is no guidance specific 

to a manufacturer’s VBP arrangement, 

manufacturers may continue to make 

reasonable assumptions consistent with 

statute and regulation regarding the 

determination of best price and AMP. 

Comment: Several commenters did 

not support the proposed rule providing 

for an additional exception to the 

generally applicable 12-quarter 

reporting rule for certain VBP 

arrangements. A few commenters noted 

this would create additional burden on 

states and fiscal agents to manually 

review rebates and credits. One 

commenter noted price reporting 

requirements for performance-based 

contracts and annuities with terms 

greater than 12 quarters are unclear and 

may cause administrative burden to 

revise. 

Response: We understand and 

appreciate the comment, as 

retrospective changes to price reporting 

can create burdens to states and 

manufacturers. However, we expect that 

prior period adjustments resulting from 

rebates or discounts paid under a VBP 

program could be made in the same 

manner as traditional prior period 

adjustments; that is, through changes to 

the URA that are sent to states by CMS, 

and paid by or paid to manufacturers. 

Comment: One commenter noted the 

proposal created opportunity for drug 

makers to game the system and 

recommended CMS more clearly define 

requirements drug makers will need to 

abide by under the new VBP rules to 

avoid future gaming. 

Response: We appreciate the 

commenter’s concerns. Manufacturers 

can offer VBP programs to payers under 

various approaches, such as a ‘‘bundled 

sales’’ approach or a multiple best price 

approach. These programs must comply 

with the VBP arrangement definition 

that we are finalizing in this final 

regulation in order for a manufacturer to 

avail itself of the regulatory flexibilities 

we are finalizing in this regulation. 

As has been the case with the MDRP 

program since its inception, 

manufacturers are responsible for 

following all applicable laws, and 

regulations, including entering into and 

having in effect a national drug rebate 

agreement which memorializes these 

requirements. Such responsibilities will 

include complying with these new 

regulations relating to VBP approaches, 

as applicable. Manufacturers continue 

to be permitted to make reasonable 

assumptions where necessary, and 

remain responsible for documenting and 

retaining those assumptions as provided 

at § 447.510(f). Manufacturers will 

remain subject to enforcement actions, 

such as CMPs, for false reporting of 

product and pricing information. In 

addition, we are delaying the effective 

date of the multiple best price VBP 

approach to January 1, 2022. We will 

provide additional guidance should it 

be necessary to both protect the integrity 

of the MDRP, as well as help assure a 

smooth implementation of the VBP 

arrangement regulatory flexibilities that 

will be available under this final 

regulation. 

After consideration of the comments 

received, we are finalizing the proposed 

rule without modification. 

H. Requirements for States (§ 447.511) 

Section 1927(b)(2)(A) of the Act 

requires that states be held responsible 

to report to each manufacturer not later 

than 60 days after the end of each rebate 

period and in a form consistent with a 


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standard reporting format established by 

the Secretary, information on the total 

number of units of each dosage form 

and strength and package size of each 

COD dispensed after December 31, 

1990, for which payment was made 

under the plan during the period, 

including such information reported by 

each Medicaid MCO, and shall 

promptly transmit a copy of such report 

to the Secretary. The accuracy and 

timeliness of this SDUD report is 

important for the MDRP, other 

programs, and legislative efforts 

including, but not limited to: 

• Actuarial and cost impact 

projections of legislative or regulatory 

changes to the MDRP; 

• The calculation of Medicaid’s 

portion of the branded prescription drug 

fee specified at section 9008 of the 

Affordable Care Act); and 

• Ongoing audits that demonstrate 

that some states still fail to bill rebates 

for physician-administered drugs 

(PADs), although it has been 13 years 

since the requirement began. 

States are required to send invoices 

(CMS–R–144 Medicaid Drug Rebate 

Invoice) to each manufacturer in the 

MDRP for which payment was made on 

behalf of the state and federal 

government for the manufacturers’ 

drugs, or in the case of MCOs (including 

PHIPs and PHAPs), drugs dispensed to 

a beneficiary in a rebate period. States 

are required to send a copy of their 

SDUD (a summary report of their 

invoice utilization data) to CMS each 

quarter. If a state makes an adjustment 

to a rebate invoice, the state is required 

to send an updated SDUD to us in the 

same reporting period in which the 

manufacturer received the adjustment. 

We have found that some states do 

not have sufficient edits in place to 

detect, reject and investigate SDUD 

outliers, which may distort the rebate 

amounts due by manufacturers. This 

results in states overbilling 

manufacturers and generating disputes 

on rebate invoices; imposing resource 

burdens on manufacturers, states, CMS, 

and other MDRP partners, as well as 

interrupting the payment of rebates to 

states and CMS. Many states seemingly 

fail to implement needed system edits to 

identify such disputes prior to billing 

manufacturers. Although both 

overbilling and underbilling must be 

disputed, manufacturers often neglect to 

dispute instances of rebate underbilling. 

We have also found that many states 

do not send the same SDUD to CMS as 

they transmit to manufacturers. In fact, 

some states send us ‘‘pre-edited’’ SDUD, 

while the manufacturer’s rebate invoice 

contains edited data. These practices do 

not comply with section 1927(b)(2)(A) 

of the Act and § 447.511(b), which 

require that states submit the same 

SDUD to us on a quarterly basis that 

they transmit to the manufacturers. As 

we move to implement new systems, we 

expect to put in place data error 

screening to better reject or alert 

identified potential inaccuracies to 

SDUD. States should also be improving 

current systems and planning updates to 

future systems to better identify and 

correct inaccurate SDUD before 

reporting to manufacturers and CMS. 

Accurate reporting of SDUD to CMS is 

important for a number of reasons that 

extend beyond the MDR program. We 

remind states and manufacturers that 

the state submission of utilization data 

to us for purposes of the MDR program 

is also available on our public website 

(https://www.medicaid.gov/medicaid/ 

prescription-drugs/state-drugutilization-data/index.html), and is 

reviewed and utilized by various 

entities (that is, IRS, OIG). State Release 

177 (July 21, 2016) (https://

www.medicaid.gov/medicaid-chipprogram-information/by-topics/ 

prescription-drugs/downloads/rxreleases/state-releases/state-rel-177.pdf) 

addresses ‘‘Non-Compliant State Drug 

Utilization Data Reporting to CMS.’’ 

We are now providing additional 

information to assist states in more 

accurately reporting SDUD to us. SDUD 

should only contain utilization data on 

NDCs that are eligible for both FFP and 

for rebates under the CMS rebate 

program. Therefore, SDUD reporting 

should not include an NDC that is not 

a COD and not eligible for rebates, even 

though it may be covered by a state as 

a prescribed drug and eligible for FFP. 

States should identify and exclude 

utilization of those drugs whose NDCs 

are: 

• Paid for with only state funds; 

• Not representative of CODs (for 

example, eligible for FFP as a prescribed 

drug but not eligible for rebates); 

• Prohibited from receiving FFP (for 

example, COD status 05 and 06, drugs 

for erectile dysfunction or sexual 

dysfunction for which there is no other 

FDA-approved indication); and 

• For units utilized for 340B claims 

prior to submitting their utilization data 

to CMS. 

After an SDUD file is successfully 

processed by CMS, the system generates 

a Utilization Discrepancy Report (UDR) 

that lists edits and alerts that were 

triggered when the SDUD file was 

processed. The UDR is routed back to 

the state via the EFT process and should 

be received within 2 days of submitting 

the SDUD file to CMS. While states 

should review each UDR in its entirety 

for data issues, certain data edits should 

be scrutinized more closely as they may 

affect state rebate billing. These error 

and alert messages include: 

• NDC’s COD Status indicates a lessthan-effective drug; 

• NDC has been terminated for more 

than 4 quarters; 

• Labeler code is terminated for the 

submitted quarter/year combination; 

• Labeler code does not participate in 

the MDR program; 

As states evaluate whether submitted 

SDUD should be revised, they should 

also evaluate whether their CMS–64–R 

reports require revision because they 

included costs for drugs that do not 

qualify for FFP. States may find 

additional helpful information in the 

Medicaid Drug Rebate Data Guide for 

States that is located in the 

‘‘Documents’’ section of DDR. 

To better hold states accountable for 

their data integrity and to mitigate the 

effects of inaccurate and untimely 

SDUD, we proposed to revise § 447.511. 

Specifically, we proposed to revise 

paragraph (a) to specify that any 

subsequent updates or changes in the 

data on the CMS–R–144 must be 

included in the state’s utilization data 

submitted to CMS. We also proposed to 

revise paragraph (b) to state that, on a 

quarterly basis, the state must submit 

drug utilization data to CMS, which will 

be the same information as submitted to 

the manufacturers on the CMS–R–144, 

as specified in § 447.511(a). In addition, 

to conform to the statutory requirement 

at section 1927(b)(2)(A) of the Act, we 

proposed to add in regulatory text that 

the state data submission will be due no 

later than 60 days after the end of each 

rebate period. In the event that a due 

date falls on a weekend or federal 

holiday, the submission will be due on 

the first business day following that 

weekend or federal holiday. We also 

proposed that any adjustments to 

submitted data would be transmitted to 

the manufacturer and CMS in the same 

reporting period. 

We also proposed to add § 447.511(d) 

to specify that the state data must be 

certified by the state Medicaid director 

(SMD), the deputy state Medicaid 

director (DSMD), or an individual other 

than the SMD or DSMD, who has 

authority equivalent to an SMD or 

DSMD or an individual with the directly 

delegated authority to perform the 

certification on behalf of the individuals 

noted in this rule. 

We also proposed to add § 447.511(e) 

to specify the state data certification 

language that must be included in the 

submission. That is, each data 

submission by a state must include the 

following certification language: 


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I hereby certify, to the best of my 

knowledge, that the state’s data 

submission is complete and accurate at 

the time of this submission, and was 

prepared in accordance with the state’s 

good faith, reasonable efforts based on 

existing guidance from CMS, section 

1927 of the Act and applicable federal 

regulations. I further certify that the 

state has transmitted data to CMS, 

including any adjustments to previous 

rebate periods, in the same reporting 

period as provided to the manufacturer. 

Further, the state certifies that it has 

applied any necessary edits to the data 

for both CMS and the manufacturer to 

avoid inaccuracies at both the NDC/line 

item and file/aggregate level. Such edits 

are to be applied in the same manner 

and in the same reporting period to both 

CMS and the manufacturer. 

We received the following comments 

on our proposed changes to the 

requirements for states (§ 447.511). 

Comment: One commenter requested 

clarification as to whether a fiscal agent 

Rebate Analyst (that is, a contractor) can 

be delegated the authority from the SMD 

or DSMD to certify the quarterly file 

transfer. 

Response: The proposed rule 

specified that the authority to certify 

may also be delegated to an individual 

who is authorized to perform the 

certification on behalf of the SMD or 

DSMD, and does not limit or restrict a 

state’s ability to delegate the 

certification function to a fiscal 

intermediary or contractor. Ultimately, 

it is the state’s responsibility to ensure 

that the data submitted to CMS 

complies with the applicable statutory 

and regulatory requirements and is 

certified as required. 

After consideration of the comments, 

we are finalizing the proposed rule 

without modification. However, since 

CMS will need to develop a collection 

instrument to address these 

requirements, we are delaying the 

effective date of this provision until 

January 1, 2022. 

I. State Plan Requirements, Findings 

and Assurances (§ 447.518) 

Traditionally, states have utilized the 

SRA pathway to secure additional 

rebates over and above the federal rebate 

required of manufacturers participating 

in the MDRP. To do so, the Secretary 

must authorize a state to enter directly 

into these agreements with a 

manufacturer in accordance with 

section 1927(a)(1) of the Act. In 

accordance with section 1927(a)(1) of 

the Act, we require states to submit a 

SPA for a SRA which includes a 

template of the SRA providing the 

framework for the agreement the state 

has with the manufacturer. A CMSauthorized SRA provides the parameters 

the state and manufacturer agree upon 

regarding the supplemental rebates, 

including that such rebates are at least 

as large as the rebates required by the 

federal government. 

To make new and innovative drugs 

more available to Medicaid patients, 

states are permitted to use a SRA 

pathway to negotiate VBP agreements 

with manufacturers that are intended to 

be financially beneficial for Medicaid. 

As with a traditional SRAs, these VBP 

SRAs must be financially advantageous 

for states, but may also include an 

evidence or outcomes-based measure 

linked to the rebate. As with any other 

SRA, states are required to seek a SPA 

approval for a VBP SRA in accordance 

with section 1927(a)(1) of the Act. 

Through the SRA SPA process, a state, 

when approved by CMS, can enter into 

VBP SRAs directly with manufacturer(s) 

for both FFS and MCO (including PHIPs 

and PHAPs) COD claims. Under the 

SRA VBP arrangement, the state may 

need to set up processes to report the 

results of the evidence or outcomesbased measures of the patient back to 

the manufacturer. This could require the 

state to take on additional 

responsibilities and expense to 

eventually collect a rebate, such as 

tracking the patient, collecting data on 

the patient (such as the results of 

evidence or outcomes-based measures) 

or providing services to the patient. 

We understand that more states want 

to develop their own VBP arrangements, 

but states want to better understand the 

challenges, resources and costs to 

structure these programs and make them 

successful. In addition, given that we 

have a significant interest in the success 

of these innovative VBP programs, as 

well as the nature of the drugs that are 

subject to these agreements, we have an 

interest in helping evaluate these 

programs’ effectiveness. To accomplish 

this, we want to create a mechanism to 

exchange information about state VBP 

programs. This approach is consistent 

with section 1902(a)(30)(A) of the Act 

which requires that methods and 

procedures be established relating to the 

utilization of, and the payment for, care 

and services available under the plan 

(including but not limited to utilization 

review plans) as may be necessary to 

safeguard against unnecessary 

utilization of such care and services and 

to assure that payments are consistent 

with efficiency, economy, and quality of 

care. 

Therefore, in accordance with section 

1902(a) of the Act, we proposed that 

states provide to us specific data 

elements associated with these CMSauthorized VBP SRAs to ensure that 

payments associated with Medicaid 

patients receiving a drug under a VBP 

structure are consistent with efficiency, 

economy, and quality of care. To that 

end, we proposed adding 

§ 447.518(d)(1) and (2) to specify that a 

state participating in a CMS-authorized 

supplemental rebate VBP arrangement 

report data as specified on a yearly 

basis, and within 60 days of the end of 

each year, including the following data 

elements: 

• State. 

• National Drug Code(s) (for the drugs 

covered under the VBP arrangement). 

• Product’s FDA list name 

• Number of prescriptions. 

• Cost to the state to administer VBP 

arrangement (for example, systems 

changes, tracking outcomes, etc.). 

• Total savings generated by the 

supplemental rebates due to VBP 

arrangement. 

We invited comments on this 

approach and were particularly 

interested in understanding from the 

states those issues regarding the burden 

that such a proposal might create, and 

from all commenters on whether the 

data elements being collected are 

appropriate and useful to meet the goals 

of the proposal that we have described 

in this rule. 

We received the following comments 

on state plan requirements, findings and 

assurances (§ 447.518). 

Comment: A few commenters did not 

support the proposed changes to the 

state plan requirements section 

regarding VBP data requirements and 

recommended CMS clarify that states do 

not need to seek approval via a SPA to 

enter into VBP arrangements, whether 

based upon manufacturer arrangements 

with commercial payers or on their 

own. However, one commenter agreed 

that states should not be able to 

implement such substantial shifts (for 

example VBP arrangements) in their 

operations without federal approval. 

Response: We understand that there 

may have been confusion over the 

breadth of our proposal. This new state 

reporting requirement will apply only to 

the information and data generated 

under the CMS-authorized VBP SRAs 

that states enter into with manufacturers 

under CMS approved templates. 

Therefore, we are revising the proposed 

changes to § 447.518(d)(1) and (2) (in 

this final rule at § 447.518(d)(2) and (3)) 

to make it clear that the data be specific 

only to CMS-authorized supplemental 

rebate agreements. As noted above, 

several state Medicaid programs already 

have CMS-authorized supplemental 

rebate agreements that provide a 

template for them to enter into VBP 


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agreements with manufacturers. These 

specific agreements allow the rebates 

that are negotiated with the 

manufacturers to be exempt from best 

price as found under our regulations at 

§ 447.505(c)(7). We will continue to 

require that states seek approval of these 

types of SRAs through the SPA process. 

States will not need to seek CMS 

approval for entering into a VBP 

agreement with a manufacturer under 

the new multiple best price approach. 

Nor will states have to report to CMS 

any information or data generated under 

these arrangements. We would expect 

that states and manufacturers would 

have to enter into a separate agreement 

under a multiple best price arrangement 

to indicate their intent to meet the 

manufacturer’s requirements (for 

example, patient testing, patient 

tracking). Should the manufacturer and 

state negotiate additional rebates over 

and above those that are offered under 

theVBP arrangement reported to CMS, 

then the state would have to do that 

under a CMS authorized VBP SRA to 

exempt those prices from ‘‘best price.’’ 

We refer readers to the description of 

current policy related to state utilization 

of SRAs as a pathway to securing 

additional rebates over and above the 

federal rebate required of manufacturers 

participating in the MDRP in the 

proposed rule (85 FR 37302 and 37303), 

and past guidance regarding SRAs and 

SPA requirements, which is available at 

https://www.medicaid.gov/federalpolicy-guidance/downloads/ 

smd091802.pdf and https://

www.medicaid.gov/medicaid-chipprogram-information/by-topics/ 

prescription-drugs/downloads/rxreleases/mfr-releases/mfr-rel-099.pdf. 

Comment: Several commenters 

supported the proposed changes for 

states to seek a SPA prior to 

implementing changes to SRAs. One 

commenter noted the SPA requirements 

improve the MDRP and allow those 

states that have an interest to adopt the 

same types of agreements that 

manufacturers have entered into with 

commercial payers. 

Response: We are not revising the 

state plan requirements related to the 

SPA process for submission of SRAs. 

However, we are adding a new 

requirement relating to the conditions 

for the approval of such CMS authorized 

VBP SRAs such that states provide us 

with certain information relative to the 

operation and results of the VBP 

program so that we may evaluate the 

effectiveness of the programs and share 

the information with other states. We 

proposed that states provide to us 

specific data elements associated with 

VBP SRAs to ensure that payments 

associated with Medicaid patients 

receiving a drug under a VBP structure 

are consistent with efficiency, economy, 

and quality of care. 

Comment: One commenter noted 

these requirements improve 

transparency relevant to the 

effectiveness of VBP arrangements as 

part of a state’s SRA, but expressed 

concern that this approach could affect 

Medicaid MCOs from negotiating 

between states and pharmaceutical 

manufacturers. 

Response: We agree that the proposed 

requirements to collect data regarding a 

state’s VBP SRA arrangement may 

impact Medicaid MCO negotiations 

with states and manufacturers to the 

extent the state and the Medicaid MCO 

have agreed to include Medicaid 

managed care enrollees in the state’s 

VBP SRA arrangements. If the Medicaid 

managed care enrollees are part of the 

state’s VBP SRA arrangement, the state 

and Medicaid MCO will likely need to 

establish responsibilities regarding the 

collection and reporting of data so that 

states meet the data collection 

requirements set forth in this final rule. 

Comment: A few commenters 

provided additional recommendations 

to the proposed changes to § 447.518(d) 

for CMS’ consideration. One commenter 

recommended that CMS develop a 

federal framework for state Medicaid 

agencies to design and implement a VBP 

arrangement, including expanding the 

existing SRA requirements to better 

enable state VBP arrangements. Another 

commenter recommended CMS require 

VBP arrangements to include minimum 

and maximum and expected rebates, 

such as a high cost drug threshold to 

avoid impact to Preferred Drug List 

classes and SRAs. 

Response: We have an interest in 

helping states ensure they understand 

and evaluate these programs’ 

effectiveness. To accomplish this, we 

proposed the collection of specific data 

elements to exchange information about 

state VBP programs, and in the event 

this information reveals federal 

involvement is needed we may address 

it in the future. We believe our proposal 

is consistent with section 1902(a)(30)(A) 

of the Act which provides that a state 

plan must provide, in part, such 

methods and procedures relating to the 

utilization of, and the payment for, care 

and services available under the plan 

(including but not limited to utilization 

review plans) as may be necessary to 

safeguard against unnecessary 

utilization of such care and services and 

to assure that payments are consistent 

with efficiency, economy, and quality of 

care. 

Comment: A few commenters agreed 

with the proposed state reporting 

requirements and offered additional 

recommendations to CMS. One 

commenter recommended additional 

reporting elements, including 

identifying the drugs under the VBP 

arrangement, the number of 

prescriptions, and the costs and savings 

attributed to the arrangement, and the 

number of beneficiaries covered under a 

VBP arrangement. One commenter 

recommended states report to CMS the 

average net price paid per unit and per 

prescription of each drug in a state’s 

VBP arrangement. 

Response: We appreciate the support 

for the proposed data elements and 

appreciate the suggestions for additional 

reporting elements. We are finalizing 

the regulation as proposed, which 

includes a requirement for the state to 

identify the specific drug by NDC, the 

product FDA list name, and the number 

of prescriptions, and cost and savings 

attributed to the VBP arrangement. 

Further instructions regarding the 

instrument for collection of these data 

elements will be provided in guidance. 

We are not finalizing a requirement for 

the state to report the number of 

beneficiaries covered under a particular 

VBP arrangement, as reporting of a low 

number of participants may lead to 

privacy concerns. As for the 

recommendation to require the 

reporting of the net price paid per unit 

and per prescription of each drug, we 

are not accepting this recommendation 

as this data element relates to a 

manufacturer’s proprietary drug pricing 

information. 

Comment: A few commenters had 

concerns about consistency of state 

reporting and requested further 

guidance or modifications to the 

proposed data. Specifically, a 

commenter recommended CMS provide 

guidance to states to ensure the 

accuracy and consistency of state 

calculations of the required elements. 

Another commenter recommended CMS 

mandate that states provide claims-level 

data as a means of ensuring the accuracy 

of their calculations and reporting. 

Response: We intend to prepare a 

collection instrument which will allow 

states to report consistent data. If 

necessary, we will provide additional 

guidance as states submit reporting 

obligations. We will not require state 

collection and reporting of claims-level 

data at the federal level. However, a 

state may review its own claims-level 

data related to the VBP arrangement to 

further analyze Medicaid beneficiary 

impact and overall Medicaid program 

impact at the state level. 


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Comment: One commenter noted VBP 

arrangements may involve measuring 

outcomes over months or years so 

reporting that would take place 

annually may fail to provide an accurate 

measure of the total savings. 

Response: We agree that measuring 

outcomes may take place over a period 

longer than a year and annual reporting 

may not result in a full picture of what 

savings can be generated by a VBP 

arrangement. Therefore, we are 

requesting that the data collected and 

reported in the annual report be 

cumulative so that the annual report 

provides the data elements that are 

requested, and that the final report on 

the VBP program is generated within 60 

days after the final year of the VBP time 

period. Therefore, we are revising the 

regulation at § 447.518(d)(2) and (3) to 

provide that a state participating in a 

VBP arrangement approved under a 

CMS authorized SRA report the 

required data (including cumulative 

data to date) found at paragraphs 

(d)(3)(i) through (vi) within 60 days of 

the end of each year also include 

cumulative data. 

Comment: One commenter did not 

support the proposed state VBP 

reporting requirements and 

recommended CMS implement 

reporting requirements at a later date. 

Response: These reporting 

requirements will be effective January 1, 

2022. This will give states time to 

prepare to submit this information to us. 

Comment: Several commenters 

disagreed with the proposed state 

reporting requirements citing their 

belief that they will disclose proprietary 

information between the manufacturer, 

PBM, and state. These commenters 

recommended CMS clarify that the 

actual terms and conditions of the 

contracts would not be subject to full 

disclosure. 

Response: We do not believe the data 

elements that will be collected in 

accordance with this final rule will 

disclose proprietary information. The 

reporting requirements do not include a 

state’s reporting of actual terms and 

conditions of the contracts between the 

state, manufacturer(s), and PBMs. 

Comment: A few commenters 

recommended CMS establish clear 

guidance regarding how states should 

calculate savings in a VBP SRA 

arrangement and how states should 

calculate the administrative expenses of 

entering into a VBP SRA arrangement. 

Another commenter noted the data 

element requiring states to report the 

total savings generated by the 

supplemental rebate due to the VBP 

may underestimate savings due to 

failure to account for rebates that have 

yet to be paid. One commenter 

requested clarification on how CMS 

intends to utilize these annual state 

reports to evaluate VBP SRA 

arrangements. 

Response: We are finalizing the 

proposal to require the data elements 

specified in the proposed rule and will 

provide further instructions regarding 

the collection of these data elements in 

guidance. Given the fact that each VBP 

arrangement has distinct measures and 

cost strategies, a one size fits all 

approach to calculating savings will be 

a challenge to state Medicaid programs. 

As stated in the preamble to the 

proposed rule, these annual reports 

from states will give CMS and states a 

better understanding of the challenges, 

resources and costs to structure these 

programs and make them successful. To 

accomplish this, we believe this 

collection will assist states in evaluating 

information about savings generated by 

state supplemental rebates received 

under VBP arrangements. 

Comment: One commenter supported 

the proposed data elements required to 

be reported by states to CMS, although 

noted that many VBP arrangements may 

show little-to-no economic value in the 

beginning especially during a multi-year 

arrangement. 

Response: We appreciate the support 

for the collection of the data elements. 

The reporting of these data elements 

will hopefully guide us and the states 

that choose to participate in VBP 

arrangements as to whether 

participating in such arrangements bring 

economic value to Medicaid. 

For the reasons stated above, we are 

finalizing the policy that states that 

enter into VBP agreements with 

manufacturers under a CMS-authorized 

supplemental rebate agreement template 

must report to us within 60 days of the 

end of each calendar year, on the data 

described in the regulation, including 

cumulative data to date, regarding the 

operation and parameters of their VBP 

arrangements. Thus, for the reasons 

discussed in the proposed rule (82 FR 

37302 and 37303) and after 

consideration of the comments received 

we are finalizing the regulations as 

proposed with modification to 

447.518(d) by making it clear that only 

VBP arrangements approved under a 

CMS-authorized SRA must submit the 

data described and ‘‘including 

cumulative data to date’’ in the 

regulatory text. Furthermore, while we 

proposed to revise § 447.518(d)(1) and 

(2), we are redesignating these sections 

as § 447.518(d)(2) and (3) in this final 

rule. This section will not be effective 

until January 1, 2022 to allow time for 

CMS to generate a collection instrument 

to collect the state’s information. 

J. Drug Utilization Review (DUR) 

Program and Electronic Claims 

Management System for Outpatient 

Drug Claims (§§ 456.700 Through 

456.725), Managed Care Standard 

Contract Requirements and 

Requirements for MCOs, PIHPs, or 

PAHPs That Provide CODs (§ 438.3(s)) 

Section 1004 of the SUPPORT Act 

requires states to implement certain 

opioid-specific DUR standards within 

their FFS and managed care programs. 

These requirements supplement 

preexisting DUR standards under 

section 1927(g) of Act. In Medicaid, 

DUR involves the structured, ongoing 

review of healthcare provider 

prescribing, pharmacist dispensing, and 

patient use of medication. DUR involves 

a comprehensive review of patients’ 

prescription and medication data and 

dispensing to help ensure appropriate 

medication decision-making and 

positive patient outcomes. Potentially 

inappropriate prescriptions, unexpected 

and potentially troublesome patterns, 

data outliers, and other issues can be 

identified when reviewing prescriptions 

through prospective DUR or 

retrospective DUR activities. In 

Prospective DUR, the screening of 

prescription drug claims occurs to 

identify problems such as therapeutic 

duplication, drug-disease 

contraindications, incorrect dosage or 

duration of treatment, drug allergy and 

clinical misuse or abuse prior to 

dispensing of the prescription to the 

patient. Retrospective DUR involves 

ongoing and periodic examination and 

reviews of claims data to identify 

patterns of inappropriate use, fraud, 

abuse, or medically unnecessary care, 

and facilitates corrective action when 

needed. Often times, these activities are 

synergistic; information gleaned through 

retrospective DUR claim reviews can be 

used to shape effective safety edits that 

can be implemented through 

prospective DUR, better enabling 

prescribers and dispensers to investigate 

prescription concerns prior to 

dispensing the medication to the 

patient. From prospective alerts (which 

can incorporate information from the 

beneficiary’s claims data), potential 

issues can be identified to help promote 

the appropriate prescription and 

dispensing of outpatient drugs to 

beneficiaries. DUR programs play a key 

role in helping health care systems 

understand, interpret, and improve the 

prescribing, administration, and use of 

medications. 

Section 1902 of the Act, as amended 

by section 1004 of the SUPPORT Act, 


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87068 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

23Prada, Sergio. (2019). Comparing the Medicaid 

Prospective Drug Utilization Review Program CostSavings Methods Used by State Agencies in 2015 

and 2016. American Health and Drug Benefits. 12– 

7–12. 

requires states to implement safety edits 

and claims review automated processes 

for opioids as DUR requirements. We 

interpret ‘‘safety edits’’ to refer to the 

prospective DUR review specified in 

section 1927(g)(2)(A) of the Act. These 

prospective safety edits provide for 

identifying potential problems at point 

of sale (POS) to engage both patients 

and prescribers about identifying and 

mitigating possible opioid misuse, 

abuse, and overdose risk at the time of 

dispensing. The POS safety edits 

provide real-time information to the 

pharmacist prior to the prescription 

being dispensed to a patient, but do not 

necessarily prevent the prescription 

from being dispensed. When a safety 

edit is prompted, the pharmacist 

receives an alert and may be required as 

dictated by good clinical practice and 

predetermined standards determined by 

the state, to take further action to 

resolve the issue flagged by the alert 

before the prescription can be 

dispensed.23 A claims review automated 

process, which we interpret to refer to 

as a retrospective DUR review as 

defined in section 1927(g)(2)(B) of the 

Act, provides for additional 

examination of claims data to identify 

patterns of fraud, abuse, gross overuse, 

or inappropriate or medically 

unnecessary care. Retrospective reviews 

often involve reviews of patient drug 

and disease history generated from 

claims data after prescriptions have 

been dispensed to the beneficiary. For 

many retrospective reviews, in an effort 

to promote appropriate prescribing and 

utilization of medications, claims data is 

evaluated against state determined 

criteria on a regular basis to identify 

recipients with drug therapy issues, 

enabling appropriate action to be taken 

based on any issues identified. After 

these reviews, prescribers often have the 

opportunity to review prescriptions and 

diagnosis history and make changes to 

therapies based on the retrospective 

review intervention. Retrospective 

claims reviews provide access to more 

comprehensive information relevant to 

the prescriptions and services that are 

being furnished to beneficiaries and 

better enable and encourage prescribers 

and dispensers to minimize opioid risk 

in their patients, and assure appropriate 

pain care. 

Many of the proposed safety edits and 

reviews described in the June 2020 

proposed rule were designed to 

implement requirements outlined in the 

SUPPORT Act. The purpose of these 

safety edits and claims reviews is to 

prompt prescribers and pharmacists to 

conduct additional safety reviews to 

determine if the patient’s opioid use is 

appropriate and medically necessary. 

Provisions to address antipsychotic 

utilization in children and fraud and 

abuse requirements were also included 

in the SUPPORT Act and are measures 

designed to enhance appropriate 

utilization of medication. In the 

proposed rule, we recognized that the 

SUPPORT Act provides considerable 

flexibility for states to specify particular 

parameters of the safety edits, claims 

review automated processes, program 

for monitoring use of antipsychotic 

medications in children, and process for 

identifying fraud and abuse. 

Additionally, we acknowledged that 

many states already have effective DUR 

processes and other controls in place, 

and that section 1902(oo)(1)(E) of the 

Act (as added by section 1004 of the 

SUPPORT Act) clarified that states may 

meet new opioid-related requirements 

with such safety edits, claims review 

automated processes, programs, or 

processes as were in place before 

October 1, 2019. However, to ensure a 

consistent baseline of minimum 

national standards for these DUR 

activities, while preserving appropriate 

flexibility for the states to determine 

their particular parameters and 

implementation, we explained our 

belief that it is necessary under our 

authority to implement section 1927(g) 

of the Act, to ensure that prescriptions 

are appropriate, medically necessary, 

and not likely to result in adverse 

medical results, to codify in regulation 

the proposed safety edits, claims review 

automated processes, program for 

monitoring antipsychotic medications 

in children, and fraud and abuse 

process requirements as described in the 

June 2020 proposed rule. Accordingly, 

we proposed provisions to implement 

opioid-related requirements established 

in the SUPPORT Act and further 

implement requirements under section 

1927(g) of the Act, in an effort to reduce 

prescription-related fraud, misuse and 

abuse. 

In addition to codifying the SUPPORT 

Act requirements, we proposed 

additional minimum DUR standards in 

the June 2020 proposed rule that states 

would be required to implement as part 

of their DUR programs. Specifically, 

section 1927 of the Act provides for 

drug use review programs for CODs to 

ensure that prescriptions (1) are 

appropriate, (2) are medically necessary, 

and (3) are not likely to result in adverse 

medical results. Accordingly, under our 

authority to implement section 1927(g) 

of the Act and consistent with the goals 

of the SUPPORT Act to ensure the 

appropriate use of prescription opioids, 

we proposed minimum standards for 

DUR reviews related to medication 

assisted treatment (MAT) and 

identification of beneficiaries who could 

be at high risk of opioid overdose for 

consideration of co-prescription or codispensing of naloxone. 

We also sought comments on 

potential additional standards that we 

might implement through future 

rulemaking, to ensure minimally 

adequate DUR programs that help 

ensure prescribed drugs are appropriate, 

medically necessary, and not likely to 

result in adverse medical results. We 

interpreted adverse medical results to 

include medication errors or medical 

adverse events, reactions and side 

effects. We noted our anticipation that 

any such additional standards would be 

clinically based and scientifically valid 

and developed with state collaboration, 

standards development organizations, 

and entities that support Medicaid DUR 

programs, and would help ensure all 

states have established a reasonable and 

appropriate DUR program. Such 

proposed standards would align with 

current clinical guidelines and could 

address the following: Maintaining 

policies and systems to assist in 

preventing over-utilization and underutilization of prescribed medications, 

establishing quality assurance measures 

and systems to reduce medication errors 

and adverse drug interactions, and 

improving medication compliance and 

overall well-being of beneficiaries. We 

also noted that we would consider other 

mechanisms to encourage states to 

adopt additional DUR standards in a 

timely manner to respond to new and 

emerging issues in drug use, as the 

rulemaking process can be a lengthy 

process. For example, we are 

considering issuing possible future 

suggested ‘‘best practices’’ or guidance 

for states in advance of and in 

anticipation of rulemaking. We sought 

comments on the best processes for 

collaboratively developing future 

minimum DUR standards and sought 

comments from states and other 

commenters on potential approaches. 

The early signs of the opioid crisis 

emerged years ago, with groundwork for 

the crisis being laid in the late 1990s, 

when providers began to prescribe 

opioid analgesics at greater rates, which 

led to widespread misuse and abuse of 

both prescription and illegal opioids. 

After what the CDC characterizes as a 

‘‘first wave’’ of opioid deaths, a second 

wave followed in 2010, involving 

heroin, with a third wave beginning in 


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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 87069 

24 ‘‘Understanding the Epidemic.’’ Centers for 

Disease Control and Prevention, Centers for Disease 

Control and Prevention, 19 Dec. 2018, https://

www.cdc.gov/drugoverdose/epidemic/index.html. 25 ‘‘Understanding the Epidemic.’’ Centers for 

Disease Control and Prevention, Centers for Disease 

Control and Prevention, 19 Dec. 2018, 

www.cdc.gov/drugoverdose/epidemic/index.html. 26Hedegaard H, Minin ̃ o AM, Warner M. Drug 

Overdose Deaths in the United States, 1999– 

2018.pdf icon NCHS Data Brief, no. 356. 

Hyattsville, MD: National Center for Health 

Statistics. 2020. 27Wilson N, Kariisa M, Seth P, et al. Drug and 

Opioid-Involved Overdose Deaths—United States, 

2017–2018. MMWR Morb Mortal Wkly Rep 2020; 

69:290–297. 

28 ‘‘Best Practices for Addressing Prescription 

Opioid Overdoses, Misuse and Addiction.’’ CMCS 

Informational Bulletin available at 

www.medicaid.gov/federal-policy-guidance/ 

downloads/CIB-02-02-16.pdf. 

29 ‘‘Medicaid Strategies for Non-Opioid 

Pharmacologic and Non-Pharmacologic Chronic 

Pain Management.’’ CMCS Informational Bulletin at 

https://www.medicaid.gov/sites/default/files/ 

federal-policy-guidance/downloads/cib022219.pdf. 

30 ‘‘Request for Information for the Development 

of a CMS Action Plan to Prevent Opioid Addiction 

and Enhance Access to Medication-Assisted 

Treatment.’’ CMCS request for information available 

at https://www.cms.gov/About-CMS/Story-Page/ 

Opioid-SUPPORT-Act-RFI.pdf. 

31 ‘‘CMS Roadmap: Fighting the Opiod Crisis.’’ 

Available at http://wwww.cms.gov/About-CMS/ 

Agency-Information/Emergency/Downloads/ 

Opioid-epidemic-roadmap.pdf. 

32Pain Management Best Practices Inter-Agency 

Task Force. ‘‘Pain Management Best Practices.’’ 

Available at https://www.hhs.gov/sites/default/files/ 

pmtf-final-report-2019-05-23.pdf. 

33https://www.congress.gov/115/bills/hr6/BILLS115hr6enr.pdf. 

34 ‘‘CDC Guideline for Prescribing Opioids for 

Chronic Pain—United States, 2016.’’ Centers for 

Disease Control and Prevention, Centers for Disease 

Control and Prevention, 29 Aug. 2017, https://

www.cdc.gov/mmwr/volumes/65/rr/pdfs/ 

rr6501e1er.pdf. 

35 ‘‘CDC Guideline for Prescribing Opioids for 

Chronic Pain—United States, 2016.’’ Centers for 

Disease Control and Prevention, Centers for Disease 

Control and Prevention, 18 Mar. 2016, https://

www.cdc.gov/mmwr/volumes/65/rr/ 

rr6501e1.htm?CDC_AA_refVal=https://

www.cdc.gov/mmwr/volumes/65/rr/ 

rr6501e1er.html. 

36 Dowell, D., Haegerich, T.M., Chou, R. CDC 

Guideline for Prescribing Opioids for Chronic PainUnited States 2016, Morbidity and Mortality Weekly 

Report March 18, 2016: 65)1 [Accessed February 11, 

2019 at https://www.cdc.gov/mmwr/volumes/65/rr/ 

rr6501e1.htm. 

37 ‘‘CDC Guidelines for Prescribing Opioids for 

Chronic pain.’’ Available at https://www.cdc.gov/ 

drugoverdose/pdf/guidelines_at-a-glance-a.pdf. 

2013 involving overdoses from synthetic 

opioids.24 CDC data indicate that from 

1999 through 2017, almost 400,000 

people died in the United States from an 

overdose involving any opioid, 

including prescription and illicit 

opioids.25 In 2018, there were an 

additional 67,367 drug overdose deaths 

in the United States. The age-adjusted 

rate of overdose deaths decreased by 4.6 

percent from 2017 (21.7 per 100,000) to 

2018 (20.7 per 100,000). Opioids— 

mainly synthetic opioids (other than 

methadone)—are currently the main 

driver of drug overdose deaths. Opioids 

were involved in 46,802 overdose 

deaths in 2018 (69.5 percent of all drug 

overdose deaths) 26 and two out of three 

(67.0 percent) opioid-involved overdose 

deaths involved synthetic opioids.27

In a 2016 informational bulletin titled, 

‘‘Best Practices for Addressing 

Prescription Opioid Overdoses, Misuse 

and Addiction,’’ 28 CMS issued 

guidance to states to outline how to help 

curb the opioid crisis, and in 2019, 

guidance was issued on how states can 

use statutory authority to expand the 

treatment of pain through 

complementary and integrative 

approaches.29 Section 6032 of the 

SUPPORT Act has directed HHS to 

collaborate with the Pain Management 

Best Practices Inter-Agency Task Force 

(PMTF) to develop an action plan on 

payment and coverage in Medicare and 

Medicaid for acute and chronic pain, 

and substance use disorders (SUDs), 

informed by a RFI and a public meeting 

held at CMS in September, 2019.30 The 

action plan is related to CMS’s Fighting 

the Opioid Crisis Roadmap, which 

describes our three-pronged approach to 

managing pain using a safe and effective 

range of treatment options that rely less 

on prescription opioids, expanding 

treatment for opioid use disorder (OUD), 

and using data to target prevention 

efforts and identify fraud and abuse.31

In 2018, the SUPPORT Act was 

passed as part of a bipartisan effort to 

address the opioid crisis, as well as the 

treatment of pain. The practice of 

chronic pain management and the 

opioid crisis have influenced one 

another as each has evolved in response 

to different influences and pressures. At 

the same time CMS seeks to implement 

these requirements, we want to ensure 

Medicaid beneficiaries with chronic 

pain can work with their health care 

providers to optimize function, quality 

of life, and productivity while 

minimizing risks for opioid misuse and 

harm such as addiction and overdose.32

Therefore, we discussed in the June 

2020 proposed rule that we considered 

appropriate approaches through which 

we could collaboratively develop future 

minimum DUR standards with 

involvement from states and other 

commenters, taking into account the 

need for administrative flexibility and 

adequate time for operational 

implementation, which could be 

implemented more quickly to respond 

to public health crises that may arise in 

the future on a more rapid timeframe. 

We also considered posting DUR 

recommendations on our website or 

through guidance to states to allow 

quick dissemination of the information. 

1. Minimum Standards for DUR 

Programs Under the SUPPORT Act and 

Section 1927 of the Act 

In § 456.703, we proposed to 

redesignate paragraph (h) as paragraph 

(i) and to add a new paragraph (h), 

specifying minimum standards for DUR 

programs. The proposed minimum 

standards in § 456.703(h)(1), discussed 

in greater detail in this rule, would 

implement the amendments made by 

section 1004 of the SUPPORT Act and 

section 1927(g) of the Act and are 

intended to help ensure DUR programs 

continue to adapt and improve the 

quality of pharmaceutical care provided 

to beneficiaries in the face of evolving 

healthcare guidelines and technology 

practices. 

We proposed the provisions in this 

rule for implementation of requirements 

in the SUPPORT Act 33 consistent with 

section 1927(g) of the Act. The proposed 

safety edits and claim reviews were 

intended to help protect beneficiaries 

from serious potential consequences of 

overutilization, including misuse, 

abuse, overdose, and increased side 

effects. In addition to the risk of 

overutilization and diversion, we noted 

that opioids can have side effects 

including respiratory depression, 

confusion, tolerance, and physical 

dependence.34

The CDC has recommended, in 2016 

guidance,35 that primary care providers 

prescribing to adults in outpatient 

settings consider non-pharmacologic 

therapy and non-opioid pharmacologic 

therapy as the first-line treatment for 

chronic pain.36 The CDC guideline 

defines chronic pain as ‘‘pain 

continuing or expected to continue for 

greater than 3 months or past the time 

of normal tissue healing.’’ Regarding 

chronic pain, CDC states clinicians 

should use caution when initiating 

prescribing opioids at any dosage, and 

should carefully reassess evidence of 

individual benefits and risks when 

considering increasing dosage to ≥50 

morphine milligram equivalents (MME)/ 

day, and should avoid increasing dosage 

to ≥90 MME/day or carefully justify a 

decision to titrate dosage to ≥90 MME/ 

day.37 Caution is also recommended in 

prescribing opioids for acute pain, 

noting that long-term opioid use often 

begins with treatment of acute pain; 

when opioids are prescribed for nontraumatic, non-surgical acute pain, 

primary care clinicians should prescribe 

the lowest effective dose for the shortest 

duration possible- usually 3 days or less 

is sufficient and more than 7 days will 


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87070 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

38 Dowell, D., Haegerich, T.M., Chou, R. CDC 

Guideline for Prescribing Opioids for Chronic PainUnited States 2016, Morbidity and Mortality Weekly 

Report March 18, 2016: 65)1 [Accessed February 11, 

2019 at https://www.cdc.gov/mmwr/volumes/65/rr/ 

rr6501e1.htm]. 

39For a review of the evidence base for CBT, see 

Ehde D.M., Dillworth, T.M. and Turner, J.A. 2014. 

Cognitive-Behavioral Therapy for Individuals with 

Chronic Pain: Efficacy, Innovations, and Directions 

for Research. American Psychologist, 69(2); 153– 

166. 

40Additional information on non-opioid 

treatments for chronic pain are available at https:// 

www.cdc.gov/drugoverdose/pdf/nonopioid_

treatments-a.pdf. 

41 ‘‘Managing Chronic Pain.’’ Centers for Disease 

Control and Prevention, Centers for Disease Control 

and Prevention, 18 Dec. 2019, www.cdc.gov/ 

learnmorefeelbetter/programs/chronic-pain.htm. 

42 Gaskin, Darrell J. ‘‘The Economic Costs of Pain 

in the United States.’’ Relieving Pain in America: 

A Blueprint for Transforming Prevention, Care, 

Education, and Research., U.S. National Library of 

Medicine, 1 Jan. 1970, www.ncbi.nlm.nih.gov/ 

books/NBK92521/. 

43 ‘‘Prevalence of Chronic Pain and High-Impact 

Chronic Pain among Adults—United States, 2016.’’ 

Centers for Disease Control and Prevention, Centers 

for Disease Control and Prevention, 16 Sept. 2019, 

www.cdc.gov/mmwr/volumes/67/wr/ 

mm6736a2.htm. 

44Additional information on non-opioid 

treatments for chronic pain are available at https:// 

www.cdc.gov/drugoverdose/pdf/nonopioid_

treatments-a.pdf. 45 Dowell D, Haegerich TM, Chou R. No shortcuts 

to safer opioid prescribing. N Engl J Med 2019; 380: 

2285–2287. 46HHS Guide for Clinicians on the Appropriate 

Dosage Reduction or Discontinuation of Long-Term 

Opioid Analgesics. Oct. 2019, www.hhs.gov/ 

opioids/sites/default/files/2019-10/Dosage_

Reduction_Discontinuation.pdf. 

47 ‘‘Best Practices for Addressing Prescription 

Opioid Overdoses, Misuse and Addiction.’’ CMCS 

Informational Bulletin available at 

www.medicaid.gov/federal-policy-guidance/ 

downloads/CIB-02-02-16.pdf. 

48 ‘‘Medicaid Strategies for Non-Opioid 

Pharmacologic and Non-Pharmacologic Chronic 

Pain Management.’’ CMCS Informational Bulletin at 

https://www.medicaid.gov/federal-policy-guidance/ 

downloads/cib022219.pdf. 

49Section 1902(oo)(1)(A)(i)(I) of the Act, as added 

by section 1004 of the SUPPORT Act. 

rarely be needed.38 Non-pharmacologic 

therapies pose minimal risks, and many 

of these treatments, when available and 

accessible—such as exercise therapy, 

physical therapy, and cognitive 

behavioral therapy (CBT)—have been 

shown to effectively treat chronic pain 

associated with some conditions.39 For 

example, exercise therapy can be 

effective in treating moderate pain 

associated with lower back pain, 

osteoarthritis, and fibromyalgia in some 

patients.40

In 2019, HHS’ PMTF issued its report 

to HHS and Congress, the Pain 

Management Best Practices InterAgency Task Force Report, on best 

practices for the treatment of acute and 

chronic pain. The CDC has identified 50 

million adults in the United States with 

chronic daily pain,41 and the National 

Institutes of Health (NIH) states that 

chronic daily pain cost the nation 

between $560 billion and $635 billion 

annually.42 43 The PMTF final report 

emphasizes a person-centered approach 

to pain care that includes the use of 

individualized, multimodal treatment 

based on an effective pain treatment 

plan, and the PMTF identified and 

described five broad treatment 

categories: Medications; restorative 

therapies; interventional approaches; 

behavioral approaches; and 

complementary and integrative health 

that can be used through 

multidisciplinary care. In its report, the 

PMTF recognized that there have been 

‘‘unintended consequences that have 

resulted following the release of the 

CDC guideline in 2016, which are due 

in part to misapplication or 

misinterpretation of the guideline, 

including forced tapers and patient 

abandonment’’ 44 and noted the ‘‘CDC 

has also published a pivotal article in 

the New England Journal of Medicine 

on April 24, 2019, specifically 

reiterating that the CDC guideline has 

been, in some instances, misinterpreted 

or misapplied.’’ 45 HHS recently issued 

the Guide for Clinicians on the 

Appropriate Dosage Reduction or 

Discontinuation of Long-Term Opioid 

Analgesics, to assure proper tapering 

and discontinuation of long-term 

opioids, in part to avoid harms and 

encourage person-centered care that is 

tailored to the specific needs and 

unique circumstances of each pain 

patient,46 in addition to the CMS-issued 

guidance to states in 2016 and 2019 to 

both outline how to help curb the 

opioid crisis and provide guidance to 

states that want to expand care for the 

treatment of pain.47 48

Accordingly, we proposed to add 

§ 456.703(h)(1)(i) to include minimum 

standard requirements as described in 

the June 2020 proposed rule, with the 

detailed design and implementation 

specifications left to the state’s 

discretion to meet state-specific needs. 

We noted that the purpose of these 

proposed safety edits (specifically, 

safety edits to implement state-defined 

limits on initial prescription fill days’ 

supply for patients not currently 

receiving opioid therapy, quantity, 

duplicate fills, and early refills) and 

reviews is to further implement section 

1927(g) of the Act to prevent and reduce 

the inappropriate use of opioids and 

potentially associated adverse medical 

events to sufficiently address the 

nation’s opioid overdose epidemic, 

consistent with the provisions under 

section 1004 of the SUPPORT Act. 

When implementing the SUPPORT 

Act, we proposed the following safety 

edits in § 456.703(h)(1)(i) in addition to 

a comprehensive opioid claims review 

automated retrospective review process 

where trends witnessed in safety edits 

can be reviewed and investigated. We 

noted that these reviews would allow 

subsequent appropriate actions to be 

taken as designed by the states. 

a. Opioid Safety Edits Including Initial 

Fill Days’ Supply for Opioid-Naı ̈ve 

Beneficiaries, Quantity, Therapeutically 

Duplicative Fills, and Early Refill Limits 

The SUPPORT Act requires states to 

have in place prospective safety edits 

(as specified by the state) for subsequent 

fills for opioids and a claims review 

automated process (as designed and 

implemented by the state) that indicates 

when an individual enrolled under the 

state plan (or under a waiver of the state 

plan) is prescribed a subsequent fill of 

opioids in excess of any limitation that 

may be identified by the state.49 As 

discussed in detail in this rule, 

consistent with the SUPPORT Act and 

DUR requirements under section 

1927(g)(2)(A) of the Act, we proposed 

that state-identified limitations must 

include state-specified restrictions on 

initial prescription fill days’ supply for 

patients not currently receiving opioid 

therapy; quantity limits for initial and 

subsequent fills, therapeutically 

duplicative fills, and early fills on 

opioids prescriptions; and a claims 

review automated process that indicates 

prescription fills of opioids in excess of 

these limitations to provide for the 

ongoing periodic reviews of opioids 

claim data and other records to identify 

patterns of fraud, abuse, excessive 

utilization, or inappropriate or 

medically unnecessary care, or 

prescribing or billing practices that 

indicate abuse or excessive utilization 

among physicians, pharmacists and 

individuals receiving Medicaid benefits. 

To further implement section 1927(g)(1) 

of the Act, and consistent with section 

1004 of the SUPPORT Act, we proposed 

to require these safety edits to reinforce 

efforts to combat the nation’s opioid 

crisis and ensure DUR opioid reviews 

are consistent with current clinical 

practice. We noted that these proposed 

safety edits were intended to protect 

Medicaid patients from serious 

consequences of overutilization, 

including overdose, dangerous 

interactions, increased side effects and 

additive toxicity (additive side effects). 

In addition, we noted that 

overutilization of opioids may serve as 

an indication of uncontrolled disease 


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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 87071 

50 ‘‘CDC Guideline for Prescribing Opioids for 

Chronic Pain—United States, 2016.’’ Centers for 

Disease Control and Prevention, Centers for Disease 

Control and Prevention, 29 Aug. 2017, https://

www.cdc.gov/mmwr/volumes/65/rr/pdfs/ 

rr6501e1er.pdf. 

51 Ibid. 

52Shah A., Hayes C.J., Martin B.C. Characteristics 

of Initial Prescription Episodes and Likelihood of 

Long-Term Opioid Use—United States, 2006–2015. 

Morbidity and Mortality Weekly Report 2017; 

66:265–269 [Accessed February 11, 2019 at http:// 

dx.doi.org/10.15585/mmwr.mm6610a1]. 

53 Ibid. 

54 ‘‘CDC Guideline for Prescribing Opioids for 

Chronic Pain.’’ Centers for Disease Control and 

Prevention, Centers for Disease Control and 

Prevention, https://www.cdc.gov/drugoverdose/pdf/ 

guidelines_at-a-glance-a.pdf. 

55Shah A, Hayes CJ, Martin BC. Characteristics of 

initial prescription episodes and likelihood of longterm opioid use—United States, 2006–2015. MMWR 

Morb Mortal Wkly Rep. 2017; 66(10):265–269. doi: 

10.15585/mmwr.mm6610a1. 

56 ‘‘Days’ Supply of Initial Opioid Analgesic 

Prescriptions and Additional Fills for Acute Pain 

Conditions Treated in the Primary Care Setting— 

United States, 2014 | MMWR.’’ Centers for Disease 

Control and Prevention, Centers for Disease Control 

and Prevention, https://www.cdc.gov/mmwr/ 

volumes/68/wr/mm6806a3.htm. 

and the need of increased monitoring 

and coordination of care. 

i. Limit on Days’ Supply for Opioid 

Naı ̈ve Beneficiaries 

To further implement section 

1927(g)(1) of the Act, and consistent 

with section 1004 of the SUPPORT Act, 

we proposed to require states to 

establish safety edit limitations on the 

days’ supply for an initial prescription 

opioid fill for beneficiaries who have 

not filled an opioid prescription within 

a defined time period to be specified by 

the state. In most cases, ‘‘Days Supply’’ 

is calculated by dividing the dispensed 

quantity of medication by the amount of 

the medication taken by the patient in 

one day per the prescriber’s 

instructions. ‘‘Days’ Supply’’ means 

how many days the supply of dispensed 

medication will last. This limit would 

not apply to patients currently receiving 

opioids and is meant for beneficiaries 

who have not received opioids within 

this specified time period (as defined 

and implemented by the state). The 

patients who have not received opioids 

within a specified timeframe are 

referred to as opioid naı ̈ve and would be 

subjected to the days’ supply limit on 

the opioid prescription. While the 

SUPPORT Act mentions limits on 

subsequent fills of opioids, consistent 

with section 1927(g) of the Act, we 

proposed this edit on initial fills of 

opioids to help avoid excessive 

utilization by opioid naı ̈ve beneficiaries, 

with its attendant risk of adverse effects. 

The CDC guideline recommends that 

opioids prescribed for acute pain in 

outpatient primary care settings to 

adults generally should be limited to 3 

days or fewer, and more than a 7 days’ 

supply is rarely necessary.50

Nonpharmacologic therapy and 

nonopioid pharmacologic therapy are 

preferred and should be considered by 

practitioners and patients prior to 

treatment with opioids.51 Clinical 

evidence cited by the CDC review found 

that opioid use for acute pain is 

associated with long-term opioid use, 

and that a greater amount of early 

opioid exposure is associated with 

greater risk for long-term use. An 

expected physiologic response in 

patients exposed to opioids for more 

than a few days is physical dependence 

and the chances of long-term opioid use 

begin to increase after just 3 days of use 

and rise rapidly thereafter.52 The CDC 

guideline mentions that more than a few 

days of exposure to opioids significantly 

increases hazards, that each day of 

unnecessary opioid use increases 

likelihood of physical dependence 

without adding benefit, and that 

prescriptions with fewer days’ supply 

would minimize the number of pills 

available for unintentional or 

intentional diversion.53

As discussed in the June 2020 

proposed rule, long-term opioid use 

often begins with treatment of acute 

pain. When opioids are used for acute 

pain, clinicians should prescribe the 

lowest effective dose of immediaterelease opioids and should prescribe no 

greater quantity than needed for the 

expected duration of pain severe enough 

to require opioids.54 Limiting days for 

which opioids are prescribed for opioid 

naı ̈ve patients could minimize the need 

to taper opioids to prevent distressing or 

unpleasant withdrawal symptoms and 

help prevent opioid dependence, the 

risk of which is associated with the 

amount of opioid initially prescribed.55

On state DUR surveys, many states 

indicated they already have initial fill 

limitations in place describing the 

limitations of 100 dosage units or a 34- 

day supply. Initial opioid analgesic 

prescriptions of less than or equal to 7 

days’ duration appear sufficient for 

many pain patients seen in primary care 

settings.56 We noted that, in its 2019 

clarification of the guideline, the CDC 

noted that it was ‘‘intended for primary 

care clinicians treating chronic pain for 

patients 18 and older, and examples of 

misapplication include applying the 

guideline to patients in active cancer 

treatment, patients experiencing acute 

sickle cell crises, or patients 

experiencing post-surgical pain.’’ States 

can consider the current CDC guideline 

and other clinical guidelines when 

implementing initial fill limitations, 

being mindful of the context in which 

such guidelines are written (for 

example, acute pain, chronic pain, 

treatment setting, population, etc.). 

The CDC guideline states primary care 

clinicians should assess benefits and 

harms of opioids with patients early on 

when starting opioid therapy for chronic 

pain and regularly when escalating 

doses and continue to evaluate therapy 

with patients on an ongoing basis. If 

benefits do not outweigh harms of 

continued opioid therapy, clinicians 

should optimize other therapies and 

work with patients to taper opioids to 

lower dosages or to taper and 

discontinue opioid therapy. Consistent 

with the foregoing clinical 

recommendations, we proposed to 

require states to implement safety edits 

aligned with clinical guidelines alerting 

the dispenser at the POS when an 

opioid prescription is dispensed to an 

opioid naı ̈ve patient that exceeds a 

state-specified days’ supply limitation. 

In consideration of clinical 

recommendations to limit opioid use to 

the shortest possible duration and to 

assess the clinical benefits and harms of 

opioid treatment on an ongoing basis, 

we believe this safety edit is necessary 

to assure that opioid prescriptions are 

appropriate, medically necessary, and 

not likely to result in adverse events, 

and to accomplish other purposes of the 

DUR program under section 1927(g) of 

the Act and of the SUPPORT Act. 

Accordingly, we proposed in 

§ 456.703(h)(1)(i)(A) to require states to 

implement a days’ supply limit when an 

initial opioid prescription is dispensed 

to a patient not currently receiving 

ongoing therapy with opioids. 

ii. Opioid Quantity Limits 

To further implement section 

1927(g)(1) of the Act and section 1004 

of the SUPPORT Act, we proposed to 

require states establish safety edits to 

implement quantity limits on the 

number of opioid units to be used per 

day, as identified by the state. We 

proposed that states take clinical 

indications and dosing schedules into 

account when establishing quantity 

limits to restrict the quantity of opioids 

per day to ensure dose optimization and 

to minimize potential for waste and 

diversion. While the SUPPORT Act 

mentions quantity limits on subsequent 

fills of opioids, under section 1927(g) of 

the Act, we proposed this edit to apply 

for initial and subsequent fills of 

opioids to avoid excessive utilization, 

with its attendant risk of adverse effects. 

We proposed that the quantity limits 

would be required to take into account 

both dosage and frequency, to allow for 


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87072 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

57Calabrese D. Baldinger S., Dose Optimization 

Intervention Yields Significant Drug Cost Savings. 

https://www.jmcp.org/doi/pdf/10.18553/ 

jmcp.2002.8.2.146. 

58 Daoust R. Limiting Opioid Prescribing. JAMA. 

2019; 322(2):170–171. doi:10.1001/jama.2019.5844. 

59http://www.cdc.gov/drugoverdose/pdf/ 

hhslprescriptionldrug-abuselreportl

09.2013.pdf. 

60 Ibid. 

61 ‘‘FDA Patient Education Campaign Targets 

Opioid Diversion, Disposal.’’ Available at https://

patientengagementhit.com/news/fda-patienteducation-campaign-targets-opioid-diversiondisposal. 

62Opioid Use during the Six Months After an 

Emergency Department Visit for Acute Pain: A 

Prospective Cohort Study. Friedman, Benjamin W. 

et al. Annals of Emergency Medicine, Volume 0, 

Issue 0. 

63 Dowell, Deborah, et al. ‘‘CDC Guideline for 

Prescribing Opioids for Chronic Pain--United 

States, 2016.’’ JAMA, U.S. National Library of 

Medicine, 19 Apr. 2016, https://

www.ncbi.nlm.nih.gov/pmc/articles/PMC6390846/. 

64Frieden TR, Houry D. Reducing the Risks of 

Relief--The CDC Opioid-Prescribing Guideline. N 

Engl J Med. 2016; 374(16):1501–1504. doi: 10.1056/ 

NEJMp1515917. 

65Manchikanti, Laxmaiah, et al. ‘‘Opioid 

Epidemic in the United States.’’ Pain Physician, 

U.S. National Library of Medicine, July 2012, 

www.ncbi.nlm.nih.gov/pubmed/22786464. 

66 Ibid. 

67 ‘‘Therapeutic Duplication.’’ Journal of the 

American Medical Association, vol. 160, no. 9, 

1956, p. 780., doi:10.1001/ 

jama.1956.02960440052016. 

dose optimization of pills, capsules, 

tablets, etc. (‘‘pills’’) and limit the 

supply of opioids being dispensed. Dose 

optimization is a method to consolidate 

the quantity of medication dispensed to 

the smallest amount required to achieve 

the desired daily dose and regimen. 

Dosage optimization seeks to 

prospectively identify patients who 

have been prescribed multiple pills per 

day of a lower strength medication 

meant to be taken together to achieve 

higher dose, when a higher strength of 

medication already is available, and 

provides clinicians a tool to switch 

these patients to a regimen that is an 

equivalent daily dose given as a single 

pill (or a smaller quantity of pills). 

Performing this intervention with 

medications that are available in 

multiple strengths, with comparable 

pricing among these strengths, can yield 

significant drug cost savings. In 

addition, dose-optimization simplifies 

dosing schedules, decreases pill 

burdens, improves treatment 

compliance and limits the number of 

excess units available for diversion.57

We noted that the proposed safety edit 

would allow most patients to achieve 

pain relief while minimizing patient pill 

burdens and unnecessary unused 

opioids.58 When implementing this edit, 

we noted that we would expect states to 

also consider current opioid guidelines, 

clinical indications, and dosing 

schedules of opioids to ensure 

prescriptions are appropriate, medically 

necessary, and not likely to result in 

adverse events. 

Decreasing the initial amount 

prescribed will lower the risk that 

patients develop an addiction to these 

drugs and transition to chronic use or 

misuse.59 A survey of adults in Utah 

estimated that in the previous 12 

months, 1 in 5 state residents were 

prescribed an opioid medication and 72 

percent had leftover pills and nearly 

three-quarters of those with leftover 

pills kept them.60 Leftover medications 

are an important source of opioids that 

are misused or diverted.61 We believe 

that decreasing the initial amount 

prescribed will lower the risk that 

patients develop OUD.62

Prescribing opioids using lowest 

dosage at fewest possible units 

dispensed based on product labeling, 

and matching duration to scheduled 

reassessment, helps reduce the quantity 

of unused, leftover opioid pills. 

Additionally, clinicians should 

continue to evaluate benefits and harms 

of continued ongoing therapy with 

opioid patients every 3 months or more 

frequently.63 As discussed in the June 

2020 proposed rule, if benefits do not 

outweigh harms of continued opioid 

therapy, clinicians should optimize 

other therapies and work with patients 

to taper opioids to lower dosages or to 

taper and discontinue opioids.64 In 

circumstances when beneficiaries are 

already opioid dependent, providers 

should consider initiating a treatment 

program, such as medication-assisted 

treatment (MAT) and/or behavioral 

counseling. State Medicaid programs 

already cover MAT, and as of October 

2020, states are required cover MAT 

drugs and services as a mandatory 

benefit. We encourage states to consider 

the situation of opioid-dependent 

beneficiaries in designing and 

implementing quantity limits in their 

comprehensive DUR programs, to 

minimize any possibility of harm. 

In consideration of clinical 

recommendations to limit opioid units 

to the fewest number possible and to 

assess the clinical benefits and harms of 

opioid treatment on an ongoing basis, 

we believe this safety edit is necessary 

to assure that opioid prescriptions are 

appropriate, medically necessary, and 

not likely to result in adverse events, 

and to accomplish other purposes of the 

DUR program under section 1927(g) of 

the Act and of the SUPPORT Act. 

Accordingly, we proposed at 

§ 456.703(h)(1)(i)(B) that states be

required to implement quantity limits

on opioids prescriptions (both initial

and subsequent fills) to help identify

abuse, misuse, excessive utilization, or

inappropriate or medically unnecessary

care.

iii. Therapeutic Duplication Limitations

To further implement section

1927(g)(1) of the Act and section 1004 

of the SUPPORT Act, we proposed to 

require states to establish safety edits to 

alert the dispenser to potential 

therapeutic duplication before a 

prescription is filled for an opioid 

product that is in the same therapeutic 

class as an opioid product currently 

being prescribed for the beneficiary. 

Prescriptions for multiple opioids and 

multiple strengths of opioids increase 

the supply of opioids available for 

diversion and abuse, as well as the 

opportunity for self-medication and 

dose escalation.65 Some patients, 

especially those living with multiple 

chronic conditions, may consult 

multiple physicians, which can put 

them at risk of receiving multiple 

medications in the same therapeutic 

class for the same diagnosis.66 In some 

instances, the side-effects produced by 

overmedication, due to the duplication 

of prescriptions within the same 

therapeutic class, are more serious than 

the original condition.67 We proposed to 

require this opioid safety edit to help 

avoid inappropriate or unnecessary 

therapeutic duplication when 

simultaneous use of multiple opioids is 

detected. 

In consideration of clinical 

recommendations to use caution in 

combining opioids and to limit opioid 

use to only when necessary while 

assessing clinical benefits and harms of 

opioid treatment on an ongoing basis, 

we believe this safety edit is necessary 

to assure that opioid prescriptions are 

appropriate, medically necessary, and 

not likely to result in adverse medical 

results, and to accomplish other 

purposes of the DUR program under 

section 1927(g) of the Act and of the 

SUPPORT Act. Accordingly, we 

proposed at § 456.703(h)(1)(i)(C) that 

states must implement safety edits for 

therapeutically duplicative fills for 

initial and subsequent prescription fills 

on opioid prescriptions and identify 

suspected abuse, misuse, excessive 

utilization, or inappropriate or 

medically unnecessary care. 

iv. Early Fill Limitations

To further implement section

1927(g)(1) of the Act and section 1004 

of the SUPPORT Act, we proposed to 


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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 87073 

68Section 1902(oo)(1)(A)(i)(II) of the Act, as 

added by section 1004 of the SUPPORT Act. 

69 ‘‘Opioids for Acute Pain.’’ Centers for Disease 

Control and Prevention, available at https://

www.cdc.gov/drugoverdose/pdf/patients/Opioidsfor-Acute-Pain-a.pdf. 

70 ‘‘CDC Guidelines for Prescribing Opioids for 

Chronic pain. ’’ Available at https://www.cdc.gov/ 

drugoverdose/pdf/guidelines_at-a-glance-a.pdf. 

71 Ibid. 

72Calculating Total Daily Dose of Opioids For 

Safer Dosage. Centers for Disease Control and 

Prevention, available at https://www.cdc.gov/ 

drugoverdose/pdf/calculating_total_daily_dosea.pdf. 73 Guideline for Prescribing Opioids for Chronic 

Pain. www.cdc.gov/drugoverdose/pdf/guidelines_ata-glance-a.pdf. 

74 Ibid. 

75https://www.hhs.gov/opioids/sites/default/ 

files/2019-10/Dosage_Reduction_

Discontinuation.pdf. 

76 ‘‘FDA identifies harm reported from sudden 

discontinuation of opioid pain medicines and 

requires label changes to guide prescribers on 

gradual, individualized tapering.’’ Food and Drug 

Administration. Available at https://www.fda.gov/ 

drugs/drug-safety-and-availability/fda-identifiesharm-reported-sudden-discontinuation-opioidpain-medicines-and-requires-label-changes. 

77 Dowell D, Haegerich TM, Chou R. CDC 

Guideline for Prescribing Opioids for Chronic 

Pain—United States, 2016. MMWR Recomm Rep 

2016; 65(No. RR–1):1–49. DOI: http://dx.doi.org/ 

10.15585/mmwr.rr6501el. https://www.cdc.gov/ 

mmwr/volumes/65/rr/rr6501e1.htm?CDC_AA_

refVal=https%3A%2F%2Fwww.cdc.gov%2Fmmwr

%2Fvolumes%2F65%2Frr%2Frr6501e1er.htm. 

require that states establish safety edits 

to alert the dispenser before a 

prescription is filled early for an opioid 

product, based on the days’ supply 

provided at the most recent fill or as 

specified by the state. As discussed in 

the June 2020 proposed rule, these early 

fill edits on opioids are intended to 

protect beneficiaries from adverse 

events associated with using an opioid 

medication beyond the prescribed dose 

schedule and to help minimize the 

opioid supply available for diversion. 

In consideration of clinical 

recommendations to limit opioid use to 

only when necessary and as prescribed, 

we believe this safety edit is necessary 

to assure that opioid prescriptions are 

appropriate, medically necessary, and 

not likely to result in adverse medical 

results, and to accomplish other 

purposes of the DUR program under 

section 1927(g) of the Act and of the 

SUPPORT Act. Accordingly, we 

proposed at § 456.703(h)(1)(i)(D) that 

states must implement early fill safety 

alerts on opioid prescriptions to identify 

abuse, misuse, excessive utilization, or 

inappropriate or medically unnecessary 

care. 

b. Maximum Daily Morphine Milligram 

Equivalent (MME) Limits 

Section 1004 of the SUPPORT Act 

requires state DUR programs to include 

safety edit limits (as specified by the 

state) on the maximum daily morphine 

equivalent that can be prescribed to an 

individual enrolled under the state plan 

(or under a waiver of the state plan) for 

treatment of chronic pain (as designed 

and implemented by the state) that 

indicates when an individual enrolled 

under the plan (or waiver) is prescribed 

the morphine equivalent for such 

treatment in excess of any threshold 

identified by the state.68 Accordingly, to 

further implement section 1927(g)(1) of 

the Act and section 1004 of the 

SUPPORT Act, we proposed that states 

must include in their DUR programs 

safety edit limitations identified by the 

state on the maximum daily MME for 

treatment of chronic pain and a claims 

review automated process, discussed in 

this rule in connection with paragraph 

(h)(1)(iii), that indicates when an 

individual is prescribed an MME in 

excess of these limitations. 

Section 1004 of the SUPPORT Act 

specifically addresses MME limitations 

in the context of chronic pain. 

According to the CDC, acute pain (as 

distinct from chronic pain) usually 

occurs suddenly and usually has a 

known cause, like an injury, surgery, or 

infection. For example, acute pain can 

be caused from a wisdom tooth 

extraction, a surgery, or a broken bone 

after an automobile accident. Acute pain 

normally resolves as your body heals. 

Chronic pain, on the other hand, can 

last weeks, months or years—past the 

normal time of healing.69 Regarding 

chronic pain, CDC states clinicians 

should use caution when prescribing 

opioids at any dosage, and should 

carefully reassess evidence of individual 

benefits and risks when considering 

increasing dosage to ≥50 morphine 

milligram equivalents (MME)/day, and 

should avoid increasing dosage to ≥90 

MME/day or carefully justify a decision 

to titrate dosage to ≥90 MME/day.70

With the proposal to require maximum 

daily MME limits, we did not mean to 

suggest rapid discontinuation of opioids 

already prescribed at higher dosages. 

The MME/day metric is often used as 

a gauge of the overdose potential of the 

amount of opioid that is being given at 

a particular time.71 Calculating the total 

daily dosage of opioids helps identify 

patients who may benefit from closer 

monitoring, reduction or tapering of 

opioids, prescribing of naloxone, or 

other measures to reduce risk of 

overdose. The opioid MME levels 

discussed in the June 2020 proposed 

rule typically would not be clinically 

appropriate for acute, short term pain; 

moreover, if the prescription were for 

acute pain, given the risks associated 

with high acute doses (in particular, 

respiratory risks), we believe that this 

limitation also would be appropriate to 

ensure appropriateness, medical 

necessity, and avoidance of adverse 

events. Accordingly, we proposed to 

require states to establish MME 

threshold amounts for implementation 

regardless of whether the prescription is 

for treatment of chronic or acute pain. 

We explained this proposal in preamble 

to the proposed rule (85 FR 37309) but 

made a technical error in the proposed 

regulation text, which was erroneously 

limited to prescriptions ‘‘for treatment 

of chronic pain.’’ 

We also noted that the proposed 

prospective safety edit must include a 

MME threshold amount to meet 

statutory requirements, to assist in 

identifying patients at potentially high 

clinical risk who may benefit from 

closer monitoring and care 

coordination. Calculation of MMEs is 

used to assess the total daily dose of 

opioids, taking into account the 

comparative potency of different 

opioids and frequency of use. The 

calculation to determine MMEs includes 

drug strength, quantity, days’ supply 

and a defined conversion factor unique 

to each drug.72 Patients prescribed 

higher opioid dosages are at higher risk 

of overdose death.73 Calculating the 

total MME daily dose of opioids can 

help identify patients who may benefit 

from closer monitoring, reduction or 

tapering of opioids, prescribing of 

naloxone, or other measures to reduce 

risk of overdose.74 HHS’s Guide for 

Clinicians on the Appropriate Dosage 

Reduction or Discontinuation of LongTerm Opioid Analgesics 75 is also a 

valuable resource for considering how 

best to taper and/or discontinue usage 

in a thoughtful manner, consistent with 

best clinical practices. We noted that 

HHS does not recommend opioids be 

tapered rapidly or discontinued 

suddenly due to the significant risks of 

opioid withdrawal, unless there is a lifethreatening issue confronting the 

individual patient. FDA issued a safety 

announcement on tapering in April 

2019 noting concerns about safely 

decreasing or discontinuing doses of 

opioids in patients who are physically 

dependent after hearing reports about 

serious harm.76

When determining MME threshold 

amounts, states are reminded that 

clinical resources, including, for 

example, the CDC guideline,77

recommend caution when prescribing 

opioids for chronic pain in certain 

circumstances, and recommend that 

primary care practitioners reassess 

evidence of individual benefits and 

risks when increasing doses and 


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87074 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

78 Dowell, Deborah, et al. ‘‘CDC Guideline for 

Prescribing Opioids for Chronic Pain—United 

States, 2016.’’ JAMA, U.S. National Library of 

Medicine, 19 Apr. 2016, https://www.ncbi.nlm

.nih.gov/pubmed/26977696. 

79Staff, News. ‘‘CDC Clarifies Opioid Guideline 

Dosage Thresholds.’’ AAFP Home, 12 Jan. 2018, 

www.aafp.org/news/health-of-the-public/20180112

cdcopioidclarify.html. 

80Section 1902(oo)(1)(A)(i)(III) of the Act, as 

added by section 1004 of the SUPPORT Act. 

81See section 1902(oo)(1)(A)(iii) of the Act, as 

added by section 1004 of the SUPPORT Act. 

subsequently, justifying decisions by 

thoroughly documenting the clinical 

basis for prescribing in the patient’s 

medical record.78 As noted, it is 

important to be cognizant that the CDC 

guideline states the dosage thresholds 

referenced therein pertain solely to 

opioids used to treat chronic pain in 

primary care settings and that these 

thresholds, as recommended by the 

CDC, do not represent hard limits for 

opioid prescriptions.79

In consideration of clinical 

recommendations and to assess the 

clinical benefits and harms of opioid 

treatment on an ongoing basis, we 

believe the proposed safety edit is 

necessary to assure at risk individuals 

are receiving appropriate treatment that 

is not likely to result in adverse medical 

results, and to accomplish other 

purposes of the DUR program under 

section 1927(g) of the Act and of the 

SUPPORT Act. Accordingly, we 

proposed at § 456.703(h)(1)(ii) that 

states be required to implement safety 

edits that indicate when an individual 

enrolled under the plan (or waiver) is 

prescribed the morphine equivalent for 

such treatment in excess of the MME 

dose limitation identified by the state. 

c. Automated Claims Reviews for 

Opioids 

To further implement section 1927(g) 

of the Act and section 1004 of the 

SUPPORT Act, we proposed that states 

must have in place a claims automated 

review process (as designed and 

implemented by the state) that indicates 

when an individual enrolled under the 

state plan (or under a waiver of the state 

plan) is prescribed opioids in excess of 

proposed limitations identified by the 

state. In these ongoing, comprehensive 

reviews of opioid claim data, states 

should continuously monitor opioid 

prescriptions, including overrides of 

safety edits by the prescriber or 

dispenser on initial fill days’ supply for 

opioid naı ̈ve patients, quantity limits, 

therapeutically duplicative fills, early 

refills and maximum daily MME 

limitations on opioids prescriptions. 

These opioid claim reviews are 

necessary to allow states to continually 

monitor opioid prescriptions 

beneficiaries are receiving and 

determine and refine future potential 

prospective DUR safety edits, based on 

the findings of the claims reviews. 

Information obtained through 

retrospective DUR claim reviews can be 

used to shape effective safety edits that 

can be implemented through 

prospective DUR, better enabling 

prescribers and dispensers to investigate 

prescription concerns prior to 

dispensing the medication to the 

patient. Through ongoing monitoring 

and observation of trends over time, 

these reviews will allow for regular 

updates to safety edits in an evolving 

pain treatment landscape. 

Accordingly, we proposed at 

§ 456.703(h)(1)(iii) that states must 

conduct retrospective claims review 

automated processes that indicate 

prescription fills in excess of the 

prospective safety edit limitations 

specified by the state under paragraph 

(h)(1)(i) or (ii) to provide for the ongoing 

review of opioid claims data to identify 

patterns of fraud, misuse, abuse, 

excessive utilization, inappropriate or 

medically unnecessary care, or 

prescribing or billing practices that 

indicate abuse or provision of 

inappropriate or medically unnecessary 

care among prescribers, pharmacists and 

individuals receiving Medicaid benefits. 

We explained that, in addition to opioid 

claims data, we also intended for states 

to consider incorporating other available 

records to provide for the ongoing 

periodic reviews of opioids claim data 

and other records (including but not 

limited to prescription histories, 

diagnoses, medical records, and 

prescription drug monitoring program 

(PDMP) files, when available), in their 

retrospective claims review automated 

processes order to identify patterns of 

fraud, misuse, abuse, excessive 

utilization, or inappropriate or 

medically unnecessary care, or 

prescribing or billing practices that 

indicate abuse or excessive utilization 

among physicians, pharmacists and 

individuals receiving Medicaid benefits. 

d. Concurrent Utilization Reviews 

Section 1902 of the Act, as amended 

by the SUPPORT Act, requires states to 

have an automated process for claims 

review (as designed and implemented 

by the state) that monitors when an 

individual enrolled under the state plan 

(or under a waiver of the state plan) is 

concurrently prescribed opioids and 

benzodiazepines or opioids and 

antipsychotics.80 This requirement is 

consistent with the requirement in 

section 1927(g)(1)(A) of the Act that 

state DUR programs must assure that 

prescriptions are appropriate, medically 

necessary, and not likely to result in 

adverse medical results. 

Clinically, through the use of 

retrospective automated claim reviews, 

concurrent use of opioids and 

benzodiazepines and opioids and 

antipsychotics, as well as potential 

complications resulting from other 

medications concurrently being 

prescribed with opioids, can be 

reduced. In the proposed rule, we 

reminded states that the requirement for 

a retrospective automated claims review 

added by section 1004 of the SUPPORT 

Act does not preclude the state from 

also establishing a prospective safety 

edit system to provide additional 

information to patients and providers at 

the POS about concurrent utilization 

alerts.81 In addition, the state could use 

the authorities under section 1927 of the 

Act to subject these patients to 

appropriate utilization management 

techniques. We reminded states that 

section 1927(g)(1) of the Act also 

currently supports including other 

potentially harmful opioid interactions 

as additional prospective or 

retrospective reviews in state DUR 

programs, such as opioids and central 

nervous system (CNS) depressants, 

including alcohol or sedatives. We 

noted that we fully support states 

including such additional opioid 

interactions or contraindications in 

prospective or retrospective reviews as 

part of a comprehensive DUR program. 

In consideration of clinical 

recommendations to limit opioids 

interactions with certain other drugs, 

including benzodiazepines and 

antipsychotics, and to assess the clinical 

benefits and harms of opioid treatment 

on an ongoing basis, we believe the 

retrospective reviews we proposed to 

require are necessary to help ensure atrisk individuals are receiving 

appropriate treatment that is not likely 

to result in adverse medical results, and 

otherwise to accomplish purposes of the 

DUR program under section 1927(g) of 

the Act and of the SUPPORT Act. 

Accordingly, we proposed at 

§ 456.703(h)(1)(iv)(A) and (B) that states 

be required to implement a claims 

review automated process that monitors 

when an individual is concurrently 

prescribed opioids and 

benzodiazepines; or opioids and 

antipsychotics. 

i. Opioid and Benzodiazepines 

Concurrent Fill Reviews 

In 2016, FDA added a boxed warning 

to prescription opioid analgesics, 

opioid-containing cough products, and 


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Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 87075 

82Office of the Commissioner. ‘‘Drug Safety 

Communications—FDA warns about serious risks 

and death when combining opioid pain or cough 

medicines with benzodiazepines; requires its 

strongest warning.’’ U.S. Food and Drug 

Administration Home Page, Office of the 

Commissioner, https://www.fda.gov/media/99761/ 

download. 

83 Jones, Jermaine D, et al. ‘‘Polydrug Abuse: a 

Review of Opioid and Benzodiazepine Combination 

Use.’’ Drug and Alcohol Dependence, U.S. National 

Library of Medicine, 1 Sept. 2012, 

www.ncbi.nlm.nih.gov/pmc/articles/PMC3454351/. 

84Forum, Addiction Policy. ‘‘Sedative Use 

Disorder.’’ Addiction Policy Forum, https://

www.addictionpolicy.org/sedative-use-disorder. 

85 ‘‘Reduce Risk of Opioid Overdose Deaths by 

Avoiding and Reducing Co-Prescribing 

Benzodiazepines.’’ MLN Matters Number: SE19011. 

Available at https://www.cms.gov/Outreach-andEducation/Medicare-Learning-Network-MLN/ 

MLNMattersArticles/downloads/SE19011.pdf. 

86Office of the Commissioner. ‘‘Drug Safety 

Communications—FDA warns about serious risks 

and death when combining opioid pain or cough 

medicines with benzodiazepines; requires its 

strongest warning.’’ U.S. Food and Drug 

Administration Home Page, Office of the 

Commissioner, https://www.fda.gov/media/99761/ 

download. 

87Pain Management Best Practices Inter-Agency 

Task Force. ‘‘Pain Management Best Practices.’’ 

Available at https://www.hhs.gov/sites/default/files/ 

pmtf-final-report-2019-05-23.pdf. 88 Ibid. 89 Ibid. 90 Davis, Matthew A., et al. ‘‘Prescription Opioid 

Use among Adults with Mental Health Disorders in 

the United States.’’ The Journal of the American 

Board of Family Medicine, vol. 30, no. 4, 2017, pp. 

407–417., doi:10.3122/jabfm.2017.04.170112. 

91 ‘‘CDC Guideline for Prescribing Opioids for 

Chronic Pain—United States, 2016.’’ Centers for 

Disease Control and Prevention, Centers for Disease 

Control and Prevention, 29 Aug. 2017, https://

www.cdc.gov/mmwr/volumes/65/rr/pdfs/ 

rr6501e1er.pdf. 

benzodiazepines with information about 

the serious risks associated with using 

these medications concurrently.82 The 

CDC guideline recommends that 

clinicians avoid prescribing 

benzodiazepines concurrently with 

opioids whenever possible. 

Benzodiazepines may be abused for 

recreational purposes by some 

individuals, with some opioid 

overdoses also involving opioids and 

benzodiazepines or other substances, 

such as alcohol.83

Studies show that people 

concurrently using both drugs are at 

higher risk of visiting the emergency 

department or being admitted to a 

hospital for a drug-related emergency.84

Due to the heightened risk of adverse 

events associated with the concurrent 

use of opioids and benzodiazepines, 

physicians should avoid the initial 

combination of opioids and 

benzodiazepines by offering alternative 

approaches.85 This review would alert 

providers when these drugs have been 

prescribed concurrently to assist in 

avoiding and mitigating associated risks. 

ii. Opioid and Antipsychotic Concurrent 

Fill Reviews 

This alert is supported by FDA’s 

boxed warning of increased risk of 

respiratory and CNS depression with 

concurrent use of opioid and CNS 

depressants such as antipsychotics or 

sedatives, including extreme sleepiness, 

slowed or difficult breathing, 

unresponsiveness or the possibility that 

death can occur.86 Patients concurrently 

prescribed opioid and antipsychotic 

drugs can benefit from increased 

coordination of care. Additionally, 

improving treatment of comorbid 

mental disorders is an important 

consideration when trying to reduce the 

overall negative impacts of pain. As the 

PMTF report noted, ‘‘the occurrence of 

pain and behavioral health 

comorbidities, including depression, 

post-traumatic stress disorder, and 

SUDs, is well documented, and it is 

established that psychosocial distress 

can contribute to pain intensity, painrelated disability, and poor response to 

chronic pain treatment.’’ 87 Evidence 

indicates that optimizing mental health 

and pain treatment can improve 

outcomes in both areas for patients seen 

in primary and specialty care settings. 

Untreated psychiatric conditions may 

increase the risk of both unintentional 

and intentional medication 

mismanagement, OUD, and overdose.88

Given the intersection between 

psychiatric/psychological symptoms 

and chronic pain, it is important that 

the behavioral health needs of patients 

with pain are appropriately and 

carefully evaluated and treated with the 

concurrent physical pain problem.89 As 

such, beneficiaries who are concurrently 

prescribed both opioids and 

antipsychotics should be considered 

from a health system or policy 

perspective when addressing their 

treatment.90 A patient’s unique 

presentation and circumstances should 

be considered when prescribing opioids 

and antipsychotics. This review would 

encourage coordination of care for 

patients taking antipsychotic and opioid 

medications concurrently. 

e. Other Considerations 

Consistent with section 

1902(oo)(1)(A)(iii) of the Act, as added 

by section 1004 of the SUPPORT Act, 

the provisions proposed to be 

implemented in § 456.703(h)(1) would 

not prohibit states from designing and 

implementing an automated claims 

review process that provides for other 

processes for the prospective or 

retrospective review of claims. 

Furthermore, none of these proposed 

provisions would prohibit the exercise 

of clinical judgment by a provider 

regarding the best or most appropriate 

care and treatment for any patient. 

We encouraged states to develop 

prospective and retrospective drug 

reviews that are consistent with medical 

practice patterns in the state to help 

meet the health care needs of the 

Medicaid patient population. In doing 

so, we encouraged states to utilize, for 

example, the 2016 CDC guideline 91 for 

primary care practitioners on 

prescribing opioids in outpatient 

settings for chronic pain. 

To avoid abrupt opioid withdrawal, 

we noted that prior authorization may 

be necessary for patients who will need 

clinical intervention to taper off high 

doses of opioids to minimize potential 

symptoms of withdrawal and manage 

their treatment regimen, while 

encouraging pain treatment using nonpharmacologic therapies and non-opioid 

medications, where available and 

appropriate. 

When implementing these 

requirements, we encouraged states to 

offer education and training and to 

provide consistent messaging across all 

healthcare providers. We noted that 

education and training of all providers 

on new opioid-related provisions and 

on the treatment of acute and chronic 

pain and behavioral health issues 

related to pain, would help minimize 

workflow disruption and ensure 

beneficiaries have access to their 

medications in a timely manner. 

The following is a summary of the 

comments we received on these 

proposed minimum standards for DUR 

programs and under the SUPPORT Act 

and section 1927 of the Act, and our 

responses. 

Comment: Some commenters 

expressed support for the availability of 

the CDC guideline for Prescribing 

Opioids for Chronic Pain, and approved 

of our references to the guideline as 

being a possible resource for states to 

use in developing their state DUR 

programs. Other commenters stated a 

belief that the guideline has been 

misapplied and is inherently flawed and 

may result in unintended consequences. 

Response: The CDC guideline is 

intended to help providers determine 

when and how to prescribe opioids for 

chronic pain, and also when and how to 

use nonopioid and nonpharmacologic 

options that can be effective with less 

risk. The guideline was developed to 

help ensure that primary care clinicians 

work with their patients to consider all 

safe and effective treatment options for 

chronic pain management. Some 

providers have misinterpreted the 

application of this document, and CDC 


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92https://www.cdc.gov/media/releases/2019/ 

s0424-advises-misapplication-guidelineprescribing-opioids.html. 

93https://www.cms.gov/About-CMS/AgencyInformation/Emergency/Downloads/Opioidepidemic-roadmap.pdf. 

94https://www.cms.gov/Outreach-and-Education/ 

Outreach/Partnerships/Downloads/CMS-OpioidMisuse-Strategy-2016.pdf. 

95https://www.medicaid.gov/sites/default/files/ 

federal-policy-guidance/downloads/cib022219.pdf. 

96https://www.medicaid.gov/sites/default/files/ 

Federal-Policy-Guidance/Downloads/cib-02-02- 

16.pdf. 

released a clarification in April 2019 in 

response.92 As discussed in the 

proposed rule and this final rule, the 

CDC Guideline for Prescribing Opioids 

for Chronic Pain is one of many clinical 

guidelines states can consult when 

implementing DUR safety edits and 

automated claims review. Section 1004 

of the SUPPORT Act amends section 

1902 of the Act to include a new 

paragraph (a)(85), requiring the state 

plan to provide that the state is in 

compliance with the new DUR 

requirements. This statutory provision, 

as well as the provisions of this final 

rule, give authority to the states to 

develop, specify and implement 

important parameters for these edits and 

reviews, as determined by the state. In 

our experience from reviewing the 

annual FFS and MCO DUR reports, 

available on www.Medicaid.gov, states 

typically consult multiple authoritative 

clinical resources and guidelines when 

designing and implementing their DUR 

programs. 

Comment: Several commenters 

suggested that CMS establish uniform 

opioid-related limits or reporting 

requirements across Medicare Part D 

and all Medicaid programs instead of 

allowing Medicaid programs to create 

unique policies for the relevant state, 

and require state Medicaid safety edits 

to be no more restrictive than those 

implemented in Medicare. 

Response: We appreciate the 

comments in reference to establishing 

consistency in DUR activities between 

Medicaid and Medicare; however, 

requirements for DUR in Medicare are 

not within the scope of this rulemaking. 

Additionally, it is important to 

remember that while Medicare is a 

federally-operated program, Medicaid is 

primarily a state-run program. The 

amendments made by section 1004 of 

the SUPPORT Act make clear that 

Congress intended for states to have 

considerable discretion in determining 

how to implement opioid-related DUR 

measures in their state Medicaid 

programs. 

Comment: Several commenters 

recommended the promotion of nonpharmacological pain management 

strategies for OUD and suggested CMS 

promote integrated care models to 

include counseling, behavioral therapies 

and physical rehabilitation. Other 

commenters suggested additional nonpharmacological pain management 

strategies to include osteopathic 

principles, including physical therapy, 

acupuncture, chiropractic care, overthe-counter medications and 

occupational therapy to improve selfmanagement of pain conditions with the 

goal of reducing pain, improving 

function, increasing self-efficacy, and 

improving quality of life. 

Response: We appreciate the 

suggestions regarding alternative nonpharmacologic therapy and agree that 

there can be an appropriate clinical role 

for therapies such as those suggested by 

the commenters. Several related CMS 

resources include, but are not limited to, 

the CMS Roadmap Strategy To Fight 

The Opioid Crisis, June 2020; 93 the 

CMS Opioid Misuse Strategy, January 

2017; 94 the Medicaid Strategies for 

Non-Opioid Pharmacologic and NonPharmacologic Chronic Pain 

Management, February 2019; 95 and Best 

Practices for Addressing Prescription 

Opioid Overdoses, Misuse and 

Addiction, January 2016.96 These 

resources provide additional 

information on Medicaid authorities 

that states may use for coverage of nonopioid pharmacologic and nonpharmacologic pain management 

therapies, highlight some preliminary 

strategies used by several states, and 

include other useful resources to help 

states. 

Comment: Several commenters 

expressed concern that the proposed 

rule would give too much autonomy to 

the states for determining days’ supply 

for opioid naı ̈ve beneficiaries, and 

quantity, therapeutic duplication and 

early refill limits. Several commenters 

also opined that leaving the 

determination of quantity limits up to 

the states’ discretion will evolve into a 

highly heterogeneous set of state 

requirements. Other commenters 

encouraged alignment and consistency 

in state DUR programs nationwide, and 

suggested that CMS should direct state 

Medicaid agencies to consult existing 

resources to come into compliance with 

the proposed requirements, if finalized. 

Response: We disagree with the 

commenters that the proposed policies 

give too much discretion to the states. 

In accordance with and the amendments 

made by section 1004 of the SUPPORT 

Act, states are required to implement 

safety edits (as specified by the state) for 

subsequent fills for opioids and a claims 

review automated process (as designed 

and implemented by the state) that 

indicates when an individual enrolled 

under the state plan (or under a waiver 

of the state plan) is prescribed a 

subsequent fill of opioids in excess of 

any limitation that may be identified by 

the state. We are finalizing our proposal 

to implement these provisions, and to 

further implement section 1927(g) of the 

Act, by requiring states to specify 

quantity, days’ supply, therapeutic 

duplication, and early fill safety alerts 

on opioids prescriptions, the specific 

parameters of which will be left to the 

states’ discretion to establish minimum 

standards. We believe these stateestablished parameters will be effective 

in helping identify abuse, misuse, 

excessive utilization, or inappropriate or 

medically unnecessary care. We 

encourage states to consult existing 

resources on safe and appropriate 

opioid prescribing. We recognize there 

are many national guidelines and 

resources available to the states. These 

include, but are not limited to, guidance 

issued by associations such as the 

Pharmacy Quality Alliance (PQA), 

National Committee for Quality 

Assurance (NCQA), National Quality 

Forum (NQF); and federal agencies 

including, but limited to, the Agency for 

Healthcare Research and Quality 

(AHRQ), the Substance Abuse and 

Mental Health Services Administration, 

and the CDC. In our experience from 

reviewing the annual FFS and MCO 

DUR reports, available on 

www.Medicaid.gov, states typically 

consult multiple authoritative clinical 

resources and guidelines when 

designing and implementing their DUR 

programs. We agree with commenters 

who suggested that the proposed 

policies would result in varying 

implementations across state DUR 

programs. However, we believe this 

variation was specifically contemplated 

by Congress in enacting the relevant 

provisions of the SUPPORT Act, and is 

fully consistent with the overall 

structure of the Medicaid program, 

which gives states flexibility to design 

and administer their programs. 

Additionally, the flexibility afforded to 

states will help enable them to ensure 

the establishment of minimum 

standards relevant to their state 

circumstances and beneficiary 

populations. 

Comment: One commenter suggested 

adopting the models found in the 

Virginia Medicaid Addiction and 

Recovery Treatment Services program 

and the Vermont Blueprint for Health 

when implementing opioid safety edits. 

Response: States can evaluate these 

and other models when designing and 


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implementing their DUR programs. 

States have the flexibility to employ 

techniques and standards from existing 

state models, or develop their own, in 

compliance with the requirements of 

this final rule. 

Comment: One commenter stated that 

CMS is applying a ‘‘one-size-fits-all 

algorithm and policies that do not take 

individual patient’s [sic] needs into 

account’’ when suggesting opioid safety 

edits. 

Response: We disagree with the 

commenter. Consistent with the 

SUPPORT Act and section 1927(g) of 

the Act, under the policies in this final 

rule, states have autonomy to 

implement safety edits as determined by 

the state, in consideration of statespecific circumstances and the needs of 

the state’s Medicaid population. For 

example, we are not prescribing a 

national limit on the quantity of opioids 

that may be prescribed or dispensed to 

a beneficiary, only that each state must 

determine a limit and implement a 

safety edit that, if exceeded, would 

trigger an alert and opportunity for 

appropriate clinical intervention prior 

to dispensing. Similarly, we are not 

establishing a specific national MME 

limit, but consistent with the statutory 

requirement added by the SUPPORT 

Act, we are requiring states to determine 

an MME limit and implement a safety 

edit to trigger an alert if it is exceeded. 

Safety edits provide an opportunity for 

identifying potential problems at the 

pharmacy POS before the prescription is 

dispensed to the individual, which 

creates an opportunity for engagement 

between pharmacists, prescribers and 

patients to identify and mitigate 

possible opioid misuse, abuse, and 

overdose risk. POS safety edits provide 

real-time information to the pharmacist 

prior to the prescription being 

dispensed to a patient; however, they do 

not necessarily prevent the prescription 

from being dispensed. When a safety 

edit is prompted, the pharmacist 

receives an alert and may be required, 

as dictated by predetermined standards 

established by the state, to take further 

action to resolve the issue prior to the 

prescription being dispensed. 

Comment: One commenter requested 

that CMS require states, when 

implementing these opioid safety edit 

requirements, to offer education and 

training and to provide consistent 

messaging across all healthcare 

providers, and noted that coordination 

between all stakeholders is key to 

successful policy and DUR program 

implementation for opioid safety edits. 

Response: Based on CMS’ Annual 

DUR Survey, it is apparent that states 

have implemented a majority of these 

proposed safety edits already. We agree 

with the commenter’s suggestion that 

states provide education and training on 

their DUR programs generally and 

regarding opioid utilization review 

initiatives specifically to providers in 

the state. Currently, states are required 

to carry out an educational program 

with respect to their DUR programs, as 

specified in section 1927(g)(2)(D) of the 

Act. We believe states generally are 

providing consistent messaging to their 

providers through educational 

mechanisms that include, but are not 

limited to, state website postings, 

bulletins and newsletters, educational 

seminars, and toolkits, as needed and 

appropriate to promote effective 

provider education and training. 

Comment: A few commenters urged 

consideration of flexible policies to 

accommodate the needs of provider 

groups, such as emergency physicians, 

and special patient populations, such as 

cancer survivors and patients with 

sickle cell disease, through the use of 

evidence-based, nationally-recognized, 

and population specific prescribing 

guidelines. These commenters suggested 

CMS direct state Medicaid agencies to 

consult existing resources on safe and 

appropriate opioid prescribing. 

Response: We appreciate the 

commenters concerns, and believe that 

the structure of the final regulation will 

continue to give states flexibility in 

designing their DUR programs to meet 

the needs of certain providers, such as 

emergency physicians and oncologists, 

and certain special populations, such as 

cancer and sickle cell patients and those 

in chronic pain. Consistent with the 

requirements of section 1004 of the 

SUPPORT Act, the states will determine 

and implement specifications for their 

DUR programs. As discussed below in 

this final rule, states have the option to 

exclude certain populations from these 

opioid-related DUR requirements. 

Nationally-recognized guidelines and 

resources are also available to the states 

and providers. Organizations that have 

developed relevant materials include, 

but are not limited to, the PQA, NCQA, 

NQF, and federal agencies including, 

but not limited to AHRQ, SAMHSA, and 

the CDC. We encourage states to consult 

existing resources on safe and 

appropriate opioid prescribing. In our 

experience from reviewing the annual 

FFS and MCO DUR reports, available on 

www.Medicaid.gov, states typically 

consult multiple authoritative clinical 

resources and guidelines when 

designing and implementing their DUR 

programs. Therefore, we are finalizing 

our proposal to allow flexibility in 

designing implementing the opioidrelated DUR parameters under 

§ 456.703(h). 

Comment: A few commenters 

encouraged CMS to gather data on the 

impact of the proposed opioid safety 

edits across race and ethnicity as studies 

have found that although the rate of 

drug-related deaths is highest among 

non-Hispanic whites, patients who are 

African American and Hispanic are less 

likely to receive any pain medication 

and more likely to receive lower doses 

of pain medication, despite higher pain 

scores. 

Response: In implementing statutory 

requirements added by the SUPPORT 

Act and in section 1927(g) of the Act, 

this final rule is intended to improve the 

clinical use of opioids in all 

beneficiaries, regardless of race or 

ethnicity, to promote improved quality 

of life. As we have noted, the states 

operate their DUR programs under 

federal guidelines and are responsible 

for using their DUR data to improve the 

use of medications in the Medicaid 

population. We believe that the use of 

these new opioid-related safety edits 

will help identify for states and health 

care professionals both those patients 

who might be taking too many opioids, 

or taking opioids in circumstances 

where their use could be medically 

inappropriate or likely to result in 

adverse medical events. States also 

retain flexibility to implement opioid 

and non-opioid related safety edits and 

claims reviews that are designed to help 

ensure that patients suffering from pain 

are receiving adequate treatment. As 

described in the proposed rule and 

elsewhere in this final rule, the states 

through their DUR programs are 

required to retrospectively review 

claims and provide feedback to 

prescribers through the required 

program of educational interventions, 

see § 456.711. The retrospective review 

process helps to identify patterns in 

prescribing and dispensing which can 

then be used by states in designing 

interventions to help improve the 

overall use of these medications. 

In addition, to support these state 

level activities, CMS collects 

information through collaboration with 

various CMS components and 

Department partners to develop and 

implement initiatives to improve data 

collection, analysis and reporting by 

race, ethnicity, primary language, 

disability, and gender, as well as other 

characteristics that have been associated 

with health disparities. We have 

formulated objectives to disseminate 

information, identify vulnerabilities and 

collaborate with states and external 

organizations on health disparities, to 

include data collection and strategies for 


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97https://www.medicaid.gov/medicaid/quality-ofcare/quality-improvement-initiatives/quality-ofcare-health-disparities/index.html. 

98https://www.hhs.gov/sites/default/files/ 

ppacacon.pdf. 

achieving health equity. Resources, 

including federal and state initiatives, 

can be accessed on Medicaid.gov.97

Through collaboration with other CMS, 

Departmental, and external entities, we 

hope to determine and correlate claims 

data to assess impact of the newly 

required safety edits in the future. 

Comment: One commenter expressed 

concern that utilization management in 

certain patient populations risks 

discriminating on the basis of disability, 

depending on what ‘‘utilization 

management techniques’’ the state may 

adopt in its implementation of the 

proposed requirements for opioidrelated safety edits and automated 

claims reviews. 

Response: Nothing in the proposed 

rule or this final rule is intended to 

interfere with the providers’ clinical 

decision-making or with the providerpatient relationship. The final rule 

continues to allow providers to make 

clinical decisions based on each 

patient’s specific situation and relevant 

clinical principles. Section 1557 of the 

Affordable Care Act 98 provides that an 

individual shall not, on the grounds 

prohibited under Title VI of the Civil 

Rights Act of 1964 (Title VI), 42 U.S.C. 

2000d et seq. (race, color, national 

origin), Title IX of the Education 

Amendments of 1972 (Title IX), 20 

U.S.C. 1681 et seq. (sex), the Age 

Discrimination Act of 1975 (Age Act), 

42 U.S.C. 6101 et seq. (age), or Section 

504 of the Rehabilitation Act of 1973 

(Section 504), 29 U.S.C. 794 (disability), 

be excluded from participation in, be 

denied the benefits of, or be subjected 

to discrimination under, any health 

program or activity, any part of which 

is receiving federal financial assistance, 

or under any program or activity that is 

administered by an Executive Agency or 

any entity established under Title I of 

the Act or its amendments. States have 

many years of experience applying 

utilization management techniques in 

the context of their Medicaid DUR 

programs, with the enactment of the 

DUR provisions of the Omnibus Budget 

Reconciliation Act (OBRA) of 1990. The 

safety edits are intended to help protect 

Medicaid patients from serious 

consequences of overutilization, 

including overdose, dangerous 

interactions, increased side effects and 

additive toxicity. Safety edits provide 

for identifying potential problems at 

pharmacy POS to engage both patient 

and provider in identifying and 

mitigating possible opioid misuse, 

abuse, and overdose risk at the time of 

dispensing which ultimately assists the 

provider in making appropriate clinical 

decisions. States will continue to have 

flexibility in design, development and 

implementation of safety edits and 

respective claims review as specified in 

section 1004 of the SUPPORT Act. 

Comment: One commenter suggested 

that the proposed rule could create 

disparities in care between individuals 

who are and who are not Medicaid 

beneficiaries, if similar safety edits and 

claims reviews, specifically including 

early refill limits, are not established for 

non-Medicaid beneficiaries. 

Additionally, one commenter suggested 

states could build in appropriate 

flexibilities and exceptions to allow for 

extenuating circumstances. 

Response: Implementing safety edits 

and claims reviews, including for early 

refill limits, is beyond the scope of this 

rulemaking with respect to individuals 

who are not Medicaid beneficiaries. The 

non-Medicaid population is not 

addressed by the relevant provisions of 

the SUPPORT Act and section 1927 of 

the Act that we are implementing 

through this rulemaking. We proposed 

and are finalizing early fill limitations at 

§ 456.703(h)(1)(i)(D) to apply with 

respect to Medicaid beneficiaries. 

However, we agree that there is no 

reason that the standards of care or 

protocols for the dispensing of 

prescription opioids should vary 

between individuals solely on the basis 

of the individual’s status as a Medicaid 

beneficiary (or not). Nothing in the 

SUPPORT Act or section 1927(g) of the 

Act prohibits states from considering 

and implementing more broadly 

applicable requirements for opioidrelated safety edits. 

Consistent with the provisions in 

section 1004 of the SUPPORT Act 

allowing states considerable discretion 

in their design and implementation of 

opioid-related safety edits, and with 

similar flexibility available for states in 

operating their DUR programs under 

section 1927(g) of the Act, this final rule 

affords states flexibility in designing 

and implementing required safety edits 

in the manner the state determines 

would be best adapted to the 

circumstances in the state, including the 

particular needs of the state’s Medicaid 

beneficiaries. This flexibility extends to 

the manner in which the state’s design 

and implementation account for 

potential extenuating circumstances, 

including emergency situations and the 

situations of beneficiaries being treated 

for particular conditions such as acute 

or chronic pain. We agree that safety 

edits should be implemented in a way 

that is sufficiently flexible to ensure that 

medically appropriate care is not 

withheld from beneficiaries in such 

circumstances, and agree that safety 

edits generally should be designed to 

avoid harm. States are encouraged to 

apply national guidelines and best 

practices to inform their design and 

implementation of the required safety 

edits before implementing any safety 

edit to ensure coordinated and 

undisruptive patient care. 

Comment: One commenter suggested 

that states that have existing initial 

prescription fill limits should be 

encouraged to align with CMS’s initial 

fill limits. 

Response: We do not specify a 

prescription fill limit for opioid drugs or 

other Medicaid reimbursed drugs; 

however, consistent with the SUPPORT 

Act and DUR requirements under 

section 1927(g) of the Act, we proposed 

and are finalizing at § 456.703(h)(1)(i) 

that states must establish stateidentified prospective safety edits that 

must include limitations on initial 

prescription fill days’ supply for 

patients not currently receiving opioid 

therapy; quantity limits for initial and 

subsequent fills, therapeutically 

duplicative fill limits, and early fill 

limits on opioids prescriptions. To 

further implement section 1927(g)(1) of 

the Act, and consistent with section 

1004 of the SUPPORT Act, we proposed 

and are finalizing this rule to require 

states to establish safety edit limitations 

on the days’ supply for an initial 

prescription opioid fill for beneficiaries 

who have not filled an opioid 

prescription within a defined time 

period to be specified by the state. This 

limit would not apply to patients 

currently receiving opioids and is meant 

for beneficiaries who have not received 

opioids within this specified time 

period (as defined and implemented by 

the state). The patients who have not 

received opioids within this statespecified timeframe are referred to as 

opioid naı ̈ve and would be subjected to 

the days’ supply limit on the opioid 

prescription initial fill, as defined and 

implemented by the state. While the 

SUPPORT Act requires state-specified 

limits on subsequent fills of opioids, 

pursuant to section 1927(g) of the Act, 

we proposed and are finalizing this rule 

with edits on initial fills of opioids to 

help avoid excessive utilization by 

opioid naı ̈ve beneficiaries, with its 

attendant risk of adverse effects. 

Comment: Some commenters 

requested that CMS modify parts of the 

proposed opioid safety edits regarding 

the limit on days’ supply for opioid 

naive beneficiaries, specifically that 

CMS remove language relating to initial 


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rr6501e1.htm?CDC_AA_

refVal=https%3A%2F%2Fwww

.cdc.gov%2Fmmwr%2Fvolumes%2F65%2Frr%2Frr

6501e1er.htm. 

prescribing as they claim it goes beyond 

the statute and could be harmful to 

certain patient groups. Other 

commenters stated that evidence for 

strict duration limits is insufficient to 

support state laws currently in place 

and that limitations may harm patients 

with chronic illnesses and injuries. 

These commenters expressed their 

belief that states should not implement 

a days’ supply limit that is less than 7 

days, and in exceptional circumstances, 

should allow for a longer supply. A few 

commenters requested that states build 

in exceptions for emergencies and 

extreme situations that could make it 

possible for patients to receive a needed 

refill. 

Response: We disagree that the 

proposed requirement that states 

establish opioid initial fill days’ supply 

limits, which we are finalizing in 

§ 456.703(h)(1)(i)(A), exceeds our 

statutory authority. As we discussed in 

the proposed rule, although the 

amendments made by section 1004 of 

the SUPPORT Act only require states to 

establish safety edits (and a claims 

review automated process) to identify 

subsequent fills of opioids in excess of 

any limitation that may be identified by 

the state, pursuant to our authority 

under section 1927(g) of the Act, we 

proposed and are finalizing a 

requirement to apply limitations to 

initial fills, as well. In consideration of 

clinical recommendations to limit 

opioid use to the shortest possible 

duration and to assess the clinical 

benefits and harms of opioid treatment 

on an ongoing basis, this safety edit is 

necessary to help ensure that opioid 

prescriptions are appropriate, medically 

necessary, and not likely to result in 

adverse events, and to accomplish other 

purposes of the DUR program under 

section 1927(g) of the Act and section 

1004 of the SUPPORT Act. Accordingly, 

we proposed and are finalizing this rule 

at § 456.703(h)(1)(i)(A) to require states 

to implement a days’ supply limit when 

an initial opioid prescription is 

dispensed to a patient not currently 

receiving ongoing therapy with opioids. 

The safety edit requirements under this 

final rule authorize states to not only 

design and implement the specific 

parameters of the safety edits based on 

existing state-specific criteria, but also 

allow states to consider all relevant 

factors in designing and implementing 

their state-specific limitations, such as 

the particular needs and circumstances 

of patients with chronic illnesses or 

injuries. States are encouraged to 

consult national guidelines when 

determining, specifying and 

implementing any safety edit (to include 

initial days supply) to ensure 

appropriate, coordinated patient care 

and minimize any unnecessary 

disruption to such care. States are also 

encouraged to evaluate specific needs 

that may arise in particular care settings 

in the state, such as in emergency 

departments and other acute treatment 

facilities; in vulnerable populations, 

such as chronically ill or disabled 

patients; and in other relevant state 

programs and initiatives, such as those 

for managing patients receiving 

medication-assisted treatment, when 

considering whether exceptional 

circumstances could mean that a 

particular implementation of a days’ 

supply limit may adversely affect 

patient care. 

We note that, under section 1927(d)(5) 

of the Act, states are required to provide 

for the dispensing of at least a 72-hour 

supply of a covered outpatient drug 

(COD), within 24 hours, in an 

emergency situation. This statutory 

requirement helps ensure timely access 

to needed medications, including when 

a beneficiary may require an opioid 

prescription in an emergency situation. 

Section 1927(d)(5)(B) of the Act ensures 

that a beneficiary can obtain an 

emergency supply until the prescriber 

or pharmacist is able to obtain prior 

authorization approval for the drug, if 

such approval is required. 

Comment: Some commenters did not 

support CMS’ proposal to require safety 

edits on initial prescription fill days’ 

supply for patients not currently 

receiving opioid therapy, quantity, 

duplicate fills, and early refills to 

prevent and reduce the inappropriate 

use of opioids and potentially 

associated adverse medical events. One 

commenter noted that ‘‘strict limits on 

opioid prescription may be 

counterproductive by increasing opioid 

dependence and failing to effectively 

address the need for SUD and OUD 

treatment.’’ The commenter explained 

that while quantity and other limits on 

prescriptions for opioids may lead to a 

decrease in the supply of opioids, there 

is no guarantee that it will result in a 

reduction of opioid-related harm. 

Response: Based on the requirements 

added by section 1004 of the SUPPORT 

Act and our existing authority under 

section 1927(g) of the Act, we proposed 

and are finalizing a requirement that 

state-identified safety edits must 

include state-specified limitations on 

initial prescription fill days’ supply for 

patients not currently receiving opioid 

therapy, quantity limits, therapeutically 

duplicative fill limits, and early refill 

limits. These opioid-related safety edits 

are intended to protect Medicaid 

enrollees, to include people with 

disabilities who live with chronic pain, 

from serious consequences of 

overutilization, including overdose, 

dangerous interactions, increased side 

effects and additive toxicity. In 

addition, overutilization of opioids may 

serve as an indication of uncontrolled 

disease and the need of increased 

monitoring and coordination of care. We 

believe these safety edits are not 

counterproductive, in fact these safety 

edits, as designed and implemented by 

the state, are necessary to assure that 

opioid prescriptions are appropriate, 

medically necessary, and not likely to 

result in adverse events. Safety edits 

provide for identifying potential 

problems at the pharmacy POS to 

engage both patient and provider in 

identifying and mitigating possible 

opioid misuse, abuse, and overdose risk 

at the time of dispensing, which 

ultimately assists the provider in 

making appropriate clinical decisions. 

Accordingly, we proposed and are 

finalizing at § 456.703(h)(1)(i)(A) 

through (D) minimum standards for 

required safety edits, with the detailed 

design and implementation 

specifications left to the state’s 

discretion to meet state-specific needs, 

to further implement section 1927(g) of 

the Act and section 1004 of the 

SUPPORT Act. 

Comment: Several commenters 

recommended that CMS standardize the 

look-back period for evaluating 

beneficiaries’ opioid medication use in 

implementing the proposed safety edits 

and claims reviews, such as considering 

whether the patient had used opioids 

within the previous 90 days, as a 

uniform standard for identifying acute 

and chronic opioid utilization. Several 

commenters recommended that we 

develop guidance on prior authorization 

standards to avoid abrupt opioid 

withdrawal. 

Response: We did not propose, and 

are not finalizing, any specific look-back 

period of time that states must use in 

their implementation of the required 

opioid-related safety edits and claims 

reviews, nor are we developing 

guidance on prior authorization 

standards to avoid abrupt opioid 

withdrawal. However, states may 

reference guidelines such as the CDC 

Guideline for Prescribing Opioids for 

Chronic Pain 99 and/or the HHS Guide 

for Clinicians on the Appropriate 

Dosage Reduction or Discontinuation of 


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100https://www.hhs.gov/opioids/sites/default/ 

files/2019-10/Dosage_Reduction_

Discontinuation.pdf. 

101https://www.kmap-state-ks.us/Documents/ 

Content/Bulletins/18101%20-%20General%20- 

%20Opioid_2.1.pdf. 

102https://www.wsha.org/quality-safety/projects/ 

opioid-pain-management/opioid-prescribingreports/. 

103https://www.drugabuse.gov/publications/ 

drugfacts/prescription-opioids. 

Long-Term Opioid Analgesics 100 when 

designing or implementing these 

standards to avoid abrupt opioid 

withdrawal. 

Details such as these are left to the 

states to determine, in consideration of 

the particular circumstances and needs 

of beneficiaries in the state. Moreover, 

we are not aware of authoritative 

clinical or health policy guidance that 

suggests a particular length of time for 

a look-back period for opioid 

prescription monitoring in patients 

receiving opioid medications. This time 

period should be established by the 

state though consultation with experts, 

such as their DUR Board. 

However, to provide an example of 

how one state uses a look back period 

to help avoid possible abuse of short 

term opioids, Kansas Medicaid requires 

prior authorization for a patient to 

obtain another opioid prescription if 

that patient had already obtained a short 

term supply of opioids (defined as a 

quantity of opioids to treat a patient for 

fewer than 90 days) within the last 4 

months.101 The prior authorization 

allows for the determination of whether 

the additional course of treatment is 

medically necessary, given that the 

patient recently had another course of 

treatment with opioids during the 

designated look back period. The 

Washington State Hospital Association, 

which has partnered with the 

Washington State Medical Association, 

is another resource to consult when 

developing and implementing statespecific look-back periods in a 

comprehensive DUR program.102

Comment: One commenter noted that 

a patient may be taking more than one 

opioid-based medication for long-term 

opioid therapy for chronic pain (that is, 

duplicate therapy), and as result, a 

significant number of safety edit alerts 

to the pharmacist may result. 

Response: The proposed safety edit 

we are finalizing in this rule for 

therapeutically duplicative fills is 

intended to identify and alert to the 

prescribing and dispensing of the same 

drug or two or more drugs from the 

same therapeutic class where periods of 

drug administration overlap. We 

acknowledge that there may be patients 

who are taking multiple opioids to help 

manage pain, and these situations may 

result in safety alerts, depending on the 

state’s implementation of the 

requirements being finalized in this 

rule. The alerts are not intended to 

necessarily limit or deny patients access 

to a prescribed opioid drug; rather, they 

are meant to flag for the pharmacist that 

the beneficiary is taking multiple 

opioids and that the opportunity should 

be used to assess the patient’s need for 

the prescribed drugs or possible changes 

in therapy, including through 

discussion with the beneficiary and/or 

the prescriber. Potential effects from 

taking therapeutically duplicative 

opioids may include excessive 

drowsiness, confusion and respiratory 

distress. Respiratory distress in turn 

may cause a condition known as 

hypoxia. Hypoxia can have short- and 

long-term psychological and 

neurological effects, including coma, 

permanent brain damage, or death.103

Therefore, we proposed and are 

finalizing at § 456.703(h)(1)(i)(C) that 

states must implement safety edits for 

therapeutically duplicative fills for 

initial and subsequent prescription fills 

on opioids prescriptions, to help 

identify potential abuse, misuse, 

excessive utilization, or inappropriate or 

medically unnecessary care. 

Comment: One commenter noted that 

the use of an MME to limit opioid use 

does not correspond to current CDC 

guidelines. The commenter further 

requested CMS postpone finalizing any 

new MME requirements around the 

treatment of chronic pain until the new 

CDC Opioid Workgroup has a chance to 

convene, consider current evidence and 

best practices, and issue 

recommendations. 

Response: Section 1004 of the 

SUPPORT Act requires state DUR 

programs to include safety edit limits 

(as specified by the state) on the 

maximum daily MME that can be 

prescribed to an individual enrolled 

under the state plan (or under a waiver 

of the state plan) for treatment of 

chronic pain (as designed and 

implemented by the state) that indicates 

when an individual enrolled under the 

plan (or waiver) is prescribed the 

morphine equivalent for such treatment 

in excess of any threshold identified by 

the state. Based on the FFY 2018 

Annual DUR Survey, most states were 

already compliant with having 

established an MME threshold, and 

those not having this safety edit in place 

were aware of the requirement added by 

section 1004 of the SUPPORT Act, 

effective October 1, 2019. To note, the 

newly appointed CDC Opioids 

Workgroup is actively working to 

update the CDC guideline; however, its 

release is not expected until late 2021, 

and is hoped to include new 

recommendations not only for chronic 

pain management, but for the treatment 

of acute, short-term pain. To implement 

the statutory requirement, we proposed 

and are finalizing at § 456.703(h)(1)(ii) 

that states must include in their DUR 

programs safety edit limitations 

identified by the state on maximum 

daily MME for treatment of chronic pain 

and, under § 456.703(h)(1)(iii), a claims 

review automated process that indicates 

when an individual is prescribed a 

MME in excess of these limitations. The 

application of this required safety edit 

does not necessarily prevent the 

prescription from being dispensed, 

rather, it provides the opportunity to 

assure clinical appropriateness of 

therapy. 

Comment: One commenter requested 

CMS emphasize that Morphine 

Milligram Equivalent (MME) safety edits 

are not strict limits, and that individual 

provider decision-making based on the 

patient’s condition will supersede safety 

edits. Another commenter 

recommended that CMS policies should 

allow physicians to make clinical 

decisions based on each patient’s 

specific circumstances, and not interfere 

in the provider-patient relationship. 

Response: The safety edits required 

under this final rule are intended to 

protect Medicaid patients from serious 

consequences of overutilization, 

including overdose, dangerous 

interactions, increased side effects and 

additive toxicity. These safety edits 

provide for identifying potential 

problems at the pharmacy POS to 

engage both patient and provider in 

identifying and mitigating possible 

opioid misuse, abuse, and overdose risk 

at the time of dispensing, which 

ultimately assists the prescriber in 

making appropriate clinical decisions; 

however, the required safety edits do 

not necessarily prevent the prescription 

from being dispensed. When a safety 

edit is prompted, the pharmacist 

receives an alert and may be required, 

as dictated by predetermined standards 

established by the state, to take further 

action to resolve the issue prior to the 

prescription being dispensed. This rule 

is not intended to interfere with 

provider-patient relationship or the 

provider’s exercise of clinical judgment. 

We are finalizing at § 456.703(h)(1)(ii), 

to require state DUR programs to 

include prospective safety edit 

limitations for opioid prescriptions, as 

specified by the state, on the maximum 

daily MME for treatment of pain, for 

initial and subsequent prescription fills. 


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104https://www.cms.gov/About-CMS/Story-Page/ 

CDCs-Tapering-Guidance.pdf. 

Comment: A few commenters 

expressed concern that due to variance 

in tolerance among patients receiving 

long-term opioid treatment and the risks 

of opioid tapering, it may not be 

conceptually possible for states to select 

an MME limit that uniformly achieves 

the goal of patient safety or that does not 

create new risks. 

Response: Section 1004 of the 

SUPPORT Act requires state DUR 

programs to include safety edit limits 

(as specified by the state) on the 

maximum daily MME that can be 

prescribed to an individual enrolled 

under the state plan (or under a waiver 

of the state plan) for treatment of 

chronic pain (as designed and 

implemented by the state) that indicates 

when an individual enrolled under the 

plan (or waiver) is prescribed the 

morphine equivalent for such treatment 

in excess of any threshold identified by 

the state. We would expect that states 

typically would not establish MME 

limits that cannot be overridden, but 

instead would implement them as a 

safety edit that, when triggered by a 

prescription for a beneficiary, would 

prompt the dispensing pharmacist to 

review the patient’s prescribed therapy. 

We expect that state implementations of 

maximum MME limits would include a 

function for exceptions based on 

specific patient factors affecting 

treatment protocol, including opioid 

dose tapering, as applicable. For 

example, the safety edit might prompt 

the pharmacist to more closely review 

all relevant clinical information about 

the prescription, counsel the beneficiary 

about the prescription and solicit from 

him or her additional information about 

why the drug has been prescribed, and 

consult directly with the prescriber to 

confirm the medical appropriateness of 

the prescription. If activities such as 

these result in a determination that the 

prescription is clinically sound and can 

be dispensed without modification, then 

we envision that the pharmacist 

typically would be able to override the 

safety edit after appropriately 

documenting that decision (consistent 

with any applicable documentation 

requirements, such as those that may be 

established by the state or a professional 

licensure or other governance entity). In 

this regard, we encourage states to 

consult existing resources on safe and 

appropriate opioid prescribing. We 

recognize there are many national 

guidelines and resources available to the 

states. Associations including, but not 

limited to, the PQA, NCQA, NQF, and 

federal agencies including AHRQ, 

SAMHSA, and the CDC can be utilized 

as existing resources. Therefore, we are 

finalizing as proposed this 

implementing regulation at 

§ 456.703(h)(1)(ii). 

Comment: Some commenters 

suggested removing the word ‘‘rapid’’ 

from the statement in the CMS proposed 

rule ‘‘we do not mean to suggest rapid 

discontinuation of opioids already 

prescribed at higher dosages,’’ as the 

commenter stated that even slow tapers 

have resulted in serious harm, which 

has not been adequately studied. 

Additionally, commenters noted that 

withdrawal is one of many risks 

associated with opioid tapering. 

Response: We use the word ‘‘rapid’’ as 

a commonly referenced term to 

differentiate tapering regimens and 

agree withdrawal symptoms may be a 

risk of opioid tapering, which could 

potentially occur with slow tapering 

regimens, also. We do not suggest rapid 

discontinuation of opioids already 

prescribed at higher dosages. The 

maximum daily MME metric is often 

used as a gauge of the overdose 

potential of the amount of opioid that is 

being given at a particular time. Please 

refer to the HHS Guide for Clinicians on 

the Appropriate Dosage Reduction or 

Discontinuation of Long-Term Opioid 

Analgesics 104 for more information. 

Comment: Some commenters noted 

that CMS could develop clearer 

guidance to ensure that safety edits and 

automated retrospective claims reviews 

achieve their intended goals without 

harming certain patient groups, 

emphasizing flexibility when applying 

safety edit thresholds, as well as 

addressing potential burden placed on 

physicians whose prescriptions might 

frequently be flagged due to the nature 

of their specialty, for example, such as 

cancer pain specialists, orthopedists or 

dental providers. 

Response: We expect that states will 

continue to allow prescribers to make 

the best clinical decisions for patients 

regarding prescription medications 

needed to treat the patient’s medical 

condition. The safety edits and 

automated retrospective claims reviews, 

as determined and implemented by 

state, that we are requiring under this 

final rule, are intended to assist 

providers in making clinical decisions 

to augment, not jeopardize patient care 

and clinical decision-making. We expect 

that many of the safety edit parameters 

will be reviewed by the state’s DUR 

Board—which must include physicians 

and pharmacists, see § 456.716(b)—prior 

to implementation by the state. We also 

know that often times, prescribers may 

not be aware that patients are taking 

concomitant drugs that include the 

same type of active ingredients, such as 

opioids, and these situations are 

sometimes only detected at the time that 

the prescription is filled through a 

prospective review process, or after the 

prescription is filled, through a 

retrospective review process. We view 

the DUR program as providing an 

important, positive feedback loop to 

prescribers and dispensers to assure 

patient safety and improve therapeutic 

outcomes. 

States will continue to have flexibility 

in design, development and 

implementation of safety edits and 

automated retrospective claims review 

as specified in section 1004 of the 

SUPPORT Act and in the provisions of 

this final rule. We envision that states 

will consult national guidelines and 

resources available to develop state 

policy to provide appropriate flexibility 

for their providers to ensure prospective 

safety edits and automated claims 

reviews will not adversely affect 

coordinated patient care, but augment 

clinical decision-making. We recognize 

there are many national guidelines and 

resources available to the states. 

Associations including, but not limited 

to, the PQA, NCQA, NQF, and federal 

agencies including AHRQ, SAMHSA, 

and the CDC can be utilized as existing 

resources. 

Comment: One commenter 

recommended requiring an additional 

prospective safety edit to monitor when 

an individual is concurrently prescribed 

opioids and either benzodiazepines or 

antipsychotics. 

Response: Under section 1004 of the 

SUPPORT Act, states are required, as 

determined and implemented by the 

state, to establish a retrospective claims 

review automated process to monitor 

when an individual is concurrently 

prescribed opioids, and 

benzodiazepines or antipsychotics. At 

the option of the state, the state may 

also establish prospective safety edits as 

part of a comprehensive DUR program 

to monitor for the same. The benefit of 

prospective safety edits for 

concurrently-prescribed medications 

would allow for real-time clinical 

assessment at the point of dispensing of 

the prescribed drugs. Additionally, such 

prospective safety edits could help in 

the detection of fraud and abuse. State 

Medicaid DUR programs promote 

patient safety through stateadministered utilization management 

(UM) tools and systems that interface 

with the state’s claims processing 

systems. The concurrent prescription 

monitoring requirement added by 

section 1004 of the SUPPORT Act is 

consistent with the requirement in 


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87082 Federal Register / Vol. 85, No. 251 / Thursday, December 31, 2020 / Rules and Regulations 

105https://qpp.cms.gov/docs/QPP_quality_

measure_specifications/CQM-Measures/2019_

Measure_131_MIPSCQM.pdf. 

106https://www.jointcommission.org/resources/ 

patient-safety-topics/pain-management-standardsfor-accredited-organizations/#a98ee961a3184ec

899b62579053a24a7. 

107Section 1902(oo)(1)(B) of the Act, as added by 

section 1004 of the SUPPORT Act. 

section 1927(g)(1)(A) of the Act that 

state DUR programs must assure that 

prescriptions are appropriate, medically 

necessary, and not likely to result in 

adverse medical results. Therefore, we 

proposed and are finalizing this rule at 

§ 456.703(h)(1)(iv)(A) and (B) to require 

states to establish a retrospective claims 

review automated process and, at the 

option of the state, prospective safety 

edits for concurrently prescribed 

opioids and benzodiazepines or 

antipsychotics, as determined and 

implemented by the state. 

Comment: One commenter 

recommended adding 

nonbenzodiazepine sedative hypnotics 

to CMS’ proposed minimum DUR 

requirements for monitoring concurrent 

prescribing with opioids. 

Response: We encourage states to 

determine whether to adopt safety edits 

for the prescribing of 

nonbenzodiazepine sedative hypnotics 

concurrently with opioids as part of 

their DUR programs. There are many 

existing resources available to the states, 

including but not limited to the PQA, 

NCQA, NQF, and federal agencies 

including AHRQ, SAMHSA, and the 

CDC, that have developed clinical 

guidance that may be relevant to 

establishing such safety edits and claims 

reviews. Neither the SUPPORT Act nor 

this final rule prohibits states from 

designing and implementing a 

prospective safety edit and/or 

retrospective automated claims review 

process to monitor for concurrent 

prescribing of opioids and another drug 

class, which additional monitoring 

could support enhanced care and 

treatment for Medicaid beneficiaries. 

Comment: A few commenters 

encouraged CMS to work with various 

commenters, including NIH and the 

NIDA, to develop objective measures of 

pain and to perform ongoing assessment 

of the DUR activities to ensure that 

legitimate patient access to appropriate 

pain treatment is not negatively 

impacted. 

Response: These activities described 

by the commenters are not within the 

scope of this rulemaking; however, we 

acknowledge the commenters’ concern 

regarding the need for beneficiaries to 

have access to appropriate pain 

treatment, and the need to assess 

whether the pain treatment regimen 

prescribed is working to alleviate the 

patient’s pain. Currently, we publish 

states’ annual responses to the FFS and 

MCO DUR surveys on Medicaid.gov, 

including national summary 

comparison reports collated by CMS. 

These reports help us conduct state 

oversight and enable states to review 

other states’ reports and compare their 

own DUR program activity to that of 

other states. In doing so, CMS and states 

gain visibility into the effectiveness of 

various DUR efforts and are better able 

to ensure that legitimate patient access 

to appropriate pain treatment is not 

negatively impacted. Additionally, 

beginning with state-submitted DUR 

reporting regarding the state’ 

compliance with requirements of this 

final rule for FFY 2020, as required 

under amendments made by section 

1004 of the SUPPORT Act, we will 

submit an annual report to Congress 

(RTC) that includes this state-submitted 

information to facilitate improved 

congressional oversight of the 

implementation of opioid-related DUR 

requirements. Finally, regarding the 

comments on developing objective 

measures of pain, we note that currently 

available national pain assessment 

resources include the CMS Clinical 

Quality Measures (CQMS) Pain 

Assessment and Follow-Up criteria 105

and the Joint Commission’s Pain 

Assessment and Management 

Standards.106

Comment: One commenter noted that 

the proposed DUR standards should 

specifically require providers to 

consider benefits of opioid medication 

along with risks, and to include 

patients’ goals and priorities in any 

decisions regarding dosage reduction. 

Response: Decisions weighing the 

benefits and risks of opioid prescription 

treatment are the purview of the 

prescriber and the patient. We agree 

that, generally in medical decisionmaking, the health care provider and the 

patient should thoroughly consider the 

benefits and risks of available treatment 

options together before arriving at a 

decision about the patient’s care. 

However, the DUR program can provide 

systematic feedback to prescribers about 

their opioid prescribing patterns, as 

compared to other prescribers, which 

information can help inform their 

thinking about their clinical treatment 

practices. 

Comment: One commenter stated that 

flexibility at all levels of DUR program 

development and implementation is key 

to ensuring that patient needs are met. 

Response: While states will need to 

comply with the requirements of the 

SUPPORT Act and the requirements of 

this final rule, we agree with the 

commenter that affording states the 

flexibility to develop and implement 

prospective safety edits and automated 

claims review processes in this final 

rule will allow states to ensure patient 

and provider needs are addressed in an 

effective DUR program. The flexibilities 

afforded to the states in this final rule 

will allow states to establish statespecific DUR standards to suit their 

circumstances and beneficiary 

populations. States also have the 

flexibility to use standards from existing 

state DUR models, or develop their own, 

in complying with the requirements of 

this final rule. We envision states will 

consult national guidelines and 

resources issued by public associations 

such as the PQA, NCQA, NQF; and 

federal agencies including, but not 

limited to, the AHRQ, SAMHSA, and 

the CDC, to develop, implement and 

potentially enhance their safety edits 

and claims reviews for an effective and 

efficient DUR program. 

In consideration of the comments 

received, with a limited exception, we 

are finalizing as proposed 

§ 456.703(h)(1)(i) through (iv), to require 

that the state’s DUR program must 

include certain minimum standards for 

DUR Programs under the SUPPORT Act 

and section 1927 of the Act. The limited 

modification to the proposed regulation 

text concerns the safety edit for MME in 

§ 456.703(h)(1)(ii), which we explained 

in preamble to the proposed rule that 

we intended to apply with respect to 

opioids prescribed for pain, not limited 

to chronic pain. 85 FR 37309. We made 

a technical error in the proposed 

regulation text that limited the 

applicability of the MME safety edit to 

opioids prescribed for chronic pain, 

which we are correcting in this final 

rule by removing the errant word 

‘‘chronic’’ from the regulation text so 

that the requirement will clearly apply 

for opioid prescriptions ‘‘for treatment 

of pain,’’ whether chronic or acute. 

f. Program To Monitor Antipsychotic 

Medications in Children 

Under section 1004 of the SUPPORT 

Act, states must have a program (as 

designed and implemented by the state) 

to monitor and manage the appropriate 

use of antipsychotic medications by 

children enrolled under the state plan 

(or under a waiver of the state plan), 

including any Medicaid expansion 

group for the Children’s Health 

Insurance Program (CHIP).107

Additionally, states must annually 

submit information on activities carried 

out under this program for individuals 

not more than the age of 18 years old 

generally, and children in foster care 


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108Crystal, Stephen et al. ‘‘Broadened use of 

atypical antipsychotics: safety, effectiveness, and 

policy challenges.’’ Health affairs (Project Hope) 

vol. 28, 5 (2009): w770–81. doi:10.1377/ 

hlthaff.28.5.w770. 

109 Ibid. 

110 Ibid. 

111Marder SR, et al. Physical health monitoring 

of patients with schizophrenia. Am J Psychiatry. 

2004; 161(8):1334. 

112https://jamanetwork.com/journals/ 

jamapsychiatry/article-abstract/2717966. 

113https://www.healthline.com/health/consumerreports-antipsychotics-children#1. 

114https://children.wi.gov/Documents/ 

Psychotropic%20Medication%20

Prescribing%20for%20Children%2

0on%20Medicaid.pdf. 

115https://www.ahrq.gov/sites/default/files/ 

wysiwyg/policymakers/chipra/factsheets/chipra_

1415-p011-1-ef_0.pdf. 116https://store.samhsa.gov/sites/default/files/ 

d7/priv/pep19-antipsychotic-bp_508.pdf. 

specifically, as part of the annual report 

submitted to the Secretary under section 

1927(g)(3)(D) of the Act, as provided in 

section 1902(oo)(1)(D) of the Act. 

Antipsychotic medications are 

increasingly used for a wide range of 

clinical indications in diverse 

populations, including privately and 

publicly insured youth.108

Antipsychotics’ adverse metabolic 

effects have heightened concern over 

growth in prescribing to youth, 

including off-label prescribing and 

polytherapy of multiple 

antipsychotics.109 Studies have raised 

concerns regarding the long term safety 

and effectiveness of antipsychotics in 

this broadened population. Studies in 

adults have found that antipsychotics 

can cause serious side effects and longterm safety and efficacy for off-label 

utilization is a particular concern in 

children.110

Some of the most concerning effects 

include uncontrollable movements and 

tremors; an increased risk of diabetes; 

substantial weight gain; elevated 

cholesterol, triglycerides and prolactin; 

changes in sexual function; and 

abnormal lactation.111 Children appear 

to be at higher risk than adults for a 

number of adverse effects, such as 

extrapyramidal symptoms and 

metabolic and endocrine abnormalities. 

Some studies suggests that 

antipsychotic treatment may be 

associated with increased mortality 

among children and youths and the 

distal benefit/risk ratio for long-term offlabel treatment remains to be 

determined.112 113

In consideration of clinical 

recommendations to monitor and 

manage the appropriate use of 

antipsychotic medications by children 

and to assess the clinical benefits and 

harms of treatment on an ongoing basis, 

we believe this program is necessary to 

help ensure children are receiving 

appropriate treatment that is not likely 

to result in adverse medical results, and 

to accomplish other purposes of the 

DUR program under section 1927(g) of 

the Act and of the SUPPORT Act. 

Accordingly, we proposed at 

§ 456.703(h)(1)(v) that states be required 

to implement programs to monitor and 

manage the appropriate use of 

antipsychotic medications by children 

enrolled under the state plan, including 

any Medicaid expansion groups for 

CHIP. We noted that we understand 

states need considerable flexibility 

when implementing this program. The 

proposed provisions were not meant to 

prohibit the exercise of clinical 

judgment by a provider regarding the 

best or most appropriate care and 

treatment for any patient. We noted that 

states are expected to work with their 

pharmacy and therapeutics (P&T) and 

DUR committees to identify clinically 

appropriate safety edits and reviews. We 

recommended states consider 

expanding DUR programs to include 

reviews on children for polytherapy 

(therapy that uses more than one 

medication), inappropriate utilization or 

off label utilization. 

The following is a summary of the 

comments we received on the proposed 

minimum standards for DUR programs 

for monitoring of antipsychotic 

medications in children, and our 

responses. 

Comment: Some commenters 

recommended that CMS further define 

or identify guidelines for appropriate 

use of antipsychotics in children and 

encourage states to align their DUR 

programs on this particular DUR edit 

with national clinical practice 

guidelines. 

Response: As outlined in the 

proposed rule, states are expected to 

consult with their Medicaid P&T and 

DUR committees, as well as state mental 

health and behavioral health 

professionals, to identify clinically 

appropriate parameters for the safety 

edits and reviews required under this 

final rule. We recommend that states, 

when developing parameters and 

criteria to implement appropriate 

prospective and retrospective DUR 

oversight for children, also consider 

specifically the applicability of such 

criteria for children in potentially 

vulnerable groups, such as children in 

foster care and those with disabilities. 

Some states have developed fact sheets 

to help communicate recommended 

strategies for prescribing psychotropic 

medication to children, including those 

in foster care and those living with 

disabilities.114

Resources to consider using include, 

but are not limited to, the AHRQ–CMS 

Pediatric Quality Measures Program 

(PQMP) fact sheet 115 and the SAMHSA 

guidance on Strategies to Promote Best 

Practice in Antipsychotic Prescribing for 

Children and Adolescents.116

After considering the comments 

received, we are finalizing, as proposed, 

§ 456.703(h)(i)(v), to require states to 

establish a program to monitor and 

manage the use of antipsychotic 

medications by children enrolled under 

the state plan, including any expansion 

group for the Children’s Health 

Insurance Program (CHIP). States must 

annually submit information on 

activities carried out under this program 

for beneficiaries not more than the age 

of 18 years old generally, and children 

in foster care specifically, as part of the 

annual report submitted to the Secretary 

under section 1927(g)(3)(D) of the Act, 

as provided in section 1902(oo)(1)(D) of 

the Act. 

g. Fraud and Abuse Identification 

Section 1902(oo)(1)(C) of the Act, as 

added by section 1004 of the SUPPORT 

Act, provides that states must have a 

process (as designed and implemented 

by the state) that identifies potential 

fraud or abuse of controlled substances 

by individuals enrolled under the state 

plan (or under a waiver of the state 

plan), health care providers prescribing 

drugs to individuals so enrolled, and 

pharmacies dispensing drugs to 

individuals so enrolled. We proposed to 

implement this requirement at 

§ 456.703(h)(1)(vi); specifically, we 

proposed that the state’s DUR program 

must include a process to identify 

potential fraud or abuse of controlled 

substances by individuals enrolled 

under the state plan, health care 

providers prescribing drugs to 

individuals so enrolled, and pharmacies 

dispensing drugs to individuals so 

enrolled. 

We intended that the proposed 

process would operate in a coordinated 

fashion with other state program 

integrity efforts. States would have 

flexibility to define specific parameters 

for reviews for fraud and abuse, as well 

as protocols for recommendation, 

referral, or escalation of reviews to the 

relevant Program Integrity/Surveillance 

Utilization Review (SURS) unit, law 

enforcement, or state professional board, 

based on patterns discovered through 

the proposed DUR process. 

Additionally, we noted that state policy 

should specify the documentation 

required when suspected fraud and/or 

abuse results in a recommendation, 


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117 ‘‘Pharmacy Lock-In Programs Slated For 

Expanded Use.’’ OPEN MINDS, 

www.openminds.com/market-intelligence/ 

executive-briefings/pharmacy-lock-programs-slatedexpanded-use/. 

118Office of National Drug Control Policy. 

Prescription Drug Monitoring Program. Prescription 

Drug Monitoring Program, April 2011. https://

www.ncjrs.gov/pdffiles1/ondcp/pdmp.pdf. 

119 ‘‘Pharmacy Lock-In Programs Slated For 

Expanded Use.’’ OPEN MINDS, 

www.openminds.com/market-intelligence/ 

executive-briefings/pharmacy-lock-programs-slatedexpanded-use/. 

120 ‘‘Prescription Drug Monitoring Frequently 

Asked Questions (FAQ): The PDMP Training and 

Technical Assistance Center.’’ Prescription Drug 

Monitoring Frequently Asked Questions (FAQ)| The 

PDMP Training and Technical Assistance Center, 

www.pdmpassist.org/content/prescription-drugmonitoring-frequently-asked-questions-faq. 

121Beaton, Thomas. ‘‘Preventing Provider Fraud 

through Health IT, Data Analytics.’’ 

HealthPayerIntelligence, 5 Oct. 2018, https://

healthpayerintelligence.com/news/preventingprovider-fraud-through-health-it-data-analytics. 

122OIG, Opioids in Medicare Part D: Concerns 

about Extreme Use and Questionable Prescribing, 

OEI–02–17–00250, July 2017. https://oig.hhs.gov/ 

oei/reports/oei-02-17-00250.pdf. 

referral, or escalation for further review, 

including the findings of any 

subsequent investigation into the 

potential deviation from the standard of 

care. States would be expected to ensure 

that DUR reviews conducted under the 

proposed requirement are aligned with 

all applicable federal requirements, 

including those specified in in 

§§ 455.12, 455.13 through 455.21, and 

455.23 and section 1902(a)(64) of the 

Act. 

We acknowledged that other 

initiatives, which many states are 

already undertaking, could work 

synergistically with the proposed 

requirement to help reduce fraud, 

misuse, and abuse related to opioids. 

For example, patient review and 

restriction programs (lock-in 

programs) 117 and PDMPs 118 also play 

an important role in detecting and 

preventing opioid-related fraud, misuse 

and abuse. Lock-in programs, also called 

patient review and restriction or drug 

management programs, are meant to cut 

down on ‘‘doctor shopping’’—the 

practice of going to several doctors or 

pharmacies to obtain or fill multiple 

prescriptions for opioids or other 

controlled substances for illicit sale or 

misuse or to support an addiction. Such 

programs are used primarily to restrict 

overutilization of medications. 

Additionally, we noted that programs 

may require beneficiaries to receive all 

prescriptions through one pharmacy, 

have all prescriptions written by one 

prescriber, receive health care services 

from one clinical professional, or all 

three, depending on how the program is 

designed.119

Section 5042 of the SUPPORT Act 

requires covered providers who are 

permitted to prescribe controlled 

substances and who participate in 

Medicaid to query qualified PDMPs 

before prescribing controlled substances 

to most Medicaid beneficiaries, 

beginning October 1, 2021. PDMPs are 

database tools sometimes utilized by 

government officials and law 

enforcement for reducing prescription 

drug fraud, abuse and diversion, but 

which more frequently can be used to 

monitor controlled substance use by 

healthcare providers including 

prescribers and pharmacists. PDMPs 

collect electronically transmitted 

prescribing and some dispensing data 

submitted by pharmacies and 

dispensing practitioners. The data are 

monitored and analyzed to support 

states’ efforts in education, research, 

enforcement and abuse prevention.120

Data analytics can help to determine the 

extent to which beneficiaries are 

prescribed high amounts of opioids, 

identify beneficiaries who may be at 

serious risk of opioid misuse or 

overdose, and identify prescribers with 

questionable opioid prescribing patterns 

for these beneficiaries.121 122 The process 

required under the SUPPORT Act and 

the proposed rule would identify 

potential fraud or abuse, and can help 

ensure that state officials and staff 

implementing the state’s program 

integrity, PDMP, and DUR functions 

work collaboratively to identify 

opportunities for DUR activities to assist 

in the identification of potential fraud 

and abuse. 

The following is a summary of the 

comments we received on the proposed 

minimum standards for DUR programs 

for fraud and abuse identification 

processes, and our responses. 

Comment: Some commenters urged 

CMS to work with states to ensure that 

mechanisms to decrease provider 

administrative burden are implemented, 

relative to checking PDMPs, such as 

allowing PDMP queries and patient 

history checks to be performed by 

designated provider staff before patient 

visits, and the ability for designated 

provider staff to integrate results into 

existing electronic health record 

systems. This would reduce the burden 

on prescribers to check the PDMP at the 

time the prescription is written, and 

reduce patient waiting time. 

Additionally, some commenters 

suggested that PDMP interoperability 

between states would enable more 

coordinated patient care and better 

guard against fraud and abuse. 

Response: Section 5042 of the 

SUPPORT Act requires covered 

providers who are permitted to 

prescribe controlled substances and 

who participate in Medicaid to query 

qualified PDMPs before prescribing 

controlled substances to most Medicaid 

beneficiaries, beginning October 1, 

2021. We agree this has the potential to 

increase administrative burden on the 

prescriber, and that such increased 

burden could be minimized if 

designated provider staff are authorized 

to check patient history prior to patient 

visits and if PDMP information is 

integrated into existing electronic health 

record systems used by prescribers. We 

encourage states to educate providers on 

any best practices identified by the state 

regarding allocation of staff resources 

for accessing PDMP information and 

integrating it into clinical care 

processes. Furthermore, we agree that 

direct integration of PDMP information 

into electronic health record systems 

has the potential to increase the 

usefulness of PDMPs and promote 

improved clinical outcomes while 

minimizing burdens on clinical staff. 

The process required under section 

5042 of the SUPPORT Act and the fraud 

and abuse identification process 

required under this final rule will help 

identify potential fraud or abuse, and 

help ensure that state officials and staff 

implementing the state’s program 

integrity, PDMP, and DUR functions 

work collaboratively to identify 

opportunities for DUR activities to assist 

in the identification of potential fraud 

and abuse. Additionally, national 

initiatives to promote interoperability of 

PDMPs is being assessed by the Office 

of National Drug Control Policy 

(ONDCP) and the CDC. 

Comment: Some commenters noted it 

may be difficult to fully understand a 

patient’s entire opioid history and use if 

the patient crosses state lines to receive 

care, since PDMPs currently are 

separate, state-specific and nonintegrated databases. In many cases, this 

results in information from one state’s 

PDMP not being easily accessible to or 

interoperable with PDMPs in other 

states. 

Response: We acknowledge the 

commenter’s concern; however, the 

accessibility and interoperability of 

PDMPs is not within the scope of this 

rulemaking. We note that section 

1944(a)(1) of the Act, as added by 

section 5042 of the SUPPORT Act, 

requires state Medicaid programs, 

beginning in October 2021, to require 

covered providers to check a qualified 

PDMP for a covered individual’s 

prescription drug history before 

prescribing a controlled substance. 

Additionally, the amendments made by 

section 5042 of the SUPPORT Act 

incentivize states to enter into 


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123Support for Patients and Communities Act, 

Section 1006(b). Requirement For State Medicaid 

Plans To Provide Coverage For Medication-Assisted 

Treatment. 

124 ‘‘Medication and Counseling Treatment’’. 

September 28, 2015. Available at https://

www.samhsa.gov/medication-assisted-treatment/ 

treatment. 

agreements with contiguous states to 

enable covered providers also to check 

the PDMPs of such contiguous states by 

providing 100 percent federal matching 

funds during fiscal years 2019 and 2020 

for design, development, and 

implementation activities for 

establishing and connecting qualifying 

PDMPs. 

Comment: Some commenters 

recommended that dosage alone not be 

used as an indicator of questionable 

prescribing when there is no other 

evidence of fraud or abuse, and that 

CMS should adopt fraud detection 

measures that do not compromise 

individualized care. 

Response: We agree that using the 

dosage of drug being prescribed as a sole 

indicator for fraud and abuse would not 

be appropriate, and we encourage states 

to utilize their flexibility to define the 

specific parameters to be implemented 

for the detection of fraud and abuse. We 

intend that this process should operate 

in a coordinated manner with other 

state program integrity efforts. States 

have flexibility to define specific 

parameters for review for fraud and 

abuse and to determine how best to 

ensure these parameters will not 

compromise or unduly interfere with 

patient care. Resources states may 

consult in determining parameters can 

be found in established national 

guidelines such as those issued by the 

PQA, NCQA, NQF, and federal agencies 

including AHRQ, SAMHSA, and the 

CDC. 

Comment: One commenter expressed 

concern with CMS’ suggestions that 

states may implement programs such as 

provider ‘‘lock-in programs’’ or 

programs that require beneficiaries to 

receive all prescriptions through one 

pharmacy, have all prescriptions written 

by one prescriber, or receive health care 

services from one clinical professional, 

to enhance existing fraud and abuse 

policies. The commenter noted that 

such programs may have unintended 

negative consequences for patients from 

a continuity of care perspective if 

patients are required to change their 

providers or discontinue using certain 

providers for services that such 

providers have appropriately provided 

to them in the past. 

Response: We intend that the process 

for developing and/or enhancing 

existing fraud and abuse programs 

should proceed in a coordinated fashion 

with other state program integrity 

efforts. Under this final rule, states have 

flexibility to define specific parameters 

for reviews for fraud and abuse, as well 

as protocols for recommendation, 

referral, or escalation of reviews to the 

relevant SURS unit, law enforcement, or 

state professional board, based on 

patterns discovered through the state’s 

DUR program. State flexibility in 

developing and/or enhancing fraud and 

abuse programs will enable states to 

mitigate potential negative effects on 

prescribers’ ability to provide 

coordinated patient care. State 

parameters should include processes to 

ensure continuity of care is not 

adversely affected when developing and 

implementing new or enhanced fraud 

and abuse programs. National 

guidelines such as those issued by the 

PQA, NCQA, NQF, and federal agencies 

including AHRQ, SAMHSA, and the 

CDC can help identify best practices for 

states to consider in implementing these 

programs. 

In consideration of the comments 

received, we are finalizing 

§ 456.703(h)(1)(vi) as proposed, to 

require that the state’s DUR program 

must include a process to identify 

potential fraud or abuse of controlled 

substances by individuals enrolled 

under the state plan, health care 

providers prescribing drugs to 

individuals so enrolled, and pharmacies 

dispensing drugs to individuals so 

enrolled. 

2. Other CMS Proposed Standards 

In addition to regulations 

implementing requirements added by 

section 1004 of the SUPPORT Act, we 

proposed additional minimum DUR 

standards in the June 2020 proposed 

rule that states would be required to 

implement as part of their DUR 

programs at § 456.703(h)(1)(vii). 

Specifically, under our authority to 

implement section 1927(g) of the Act 

and consistent with the goals of the 

SUPPORT Act to help combat the 

nation’s opioid overdose epidemic, we 

proposed additional minimum 

standards related to MAT and 

identification of beneficiaries who could 

be at high risk of opioid overdose and 

should be considered for co-prescription 

or co-dispensing of naloxone. These 

additional standards were included to 

ensure prescribed drugs are: (1) 

Appropriate; (2) medically necessary; 

and (3) not likely to result in adverse 

medical results. 

Under the proposed policies, state 

DUR programs would be required to 

include prospective safety edit alerts, 

automatic retrospective claims review, 

or a combination of these approaches as 

determined by the state, to identify 

cases where a beneficiary is prescribed 

an opioid after the beneficiary has been 

prescribed one or more drugs used for 

MAT, and prospective safety edit alerts, 

automatic retrospective claims review, 

or a combination of these approaches as 

determined by the state to expand 

appropriate utilization of naloxone. As 

discussed in the June 2020 proposed 

rule, we proposed these minimum 

requirements to further implement 

section 1927(g) of the Act to prevent and 

reduce the inappropriate use of opioids 

and potentially associated adverse 

medical results, consistent with the 

provisions under section 1004 of the 

SUPPORT Act. 

a. Medication Assisted Treatment 

(MAT) 

To further implement section 

1927(g)(1) of the Act and consistent 

with section 1004 of the SUPPORT Act, 

we proposed to require states to 

establish prospective safety edit alerts, 

automatic retrospective claims review, 

or a combination of these approaches as 

determined by the state, to identify 

cases where a beneficiary is prescribed 

an opioid after the beneficiary has been 

prescribed one or more drugs used for 

MAT or had an OUD diagnosis within 

a specified number of days (as 

determined by the state), without having 

a new indication to support utilization 

of opioids (such as a new cancer 

diagnosis, new palliative care treatment 

or entry into hospice). 

MAT is treatment for SUD that 

includes addiction treatment and 

services plus a medication approved by 

FDA for opioid addiction, 

detoxification, or maintenance 

treatment or relapse prevention. Section 

1006(b) of the SUPPORT Act defines 

MAT to include all FDA approved drugs 

and licensed biological products to treat 

opioid disorders, as well as counseling 

services and behavioral therapies for the 

provision of such drugs and biological 

products.123 MAT has proven to be 

clinically effective in treating OUD and 

significantly reduces the need for 

inpatient detoxification services.124

Medications such as buprenorphine and 

methadone, in combination with 

counseling and behavioral therapies, 

provide a whole-patient approach to the 

treatment of OUDs. 

Using opioid medications during the 

course of MAT is dangerous from a 

clinical perspective. Prospective drug 

safety edits are also designed to identify 

other prescription and non-prescription 

medications that are not indicated for 

use by patients being treated with 

opioid therapy. For example, an 


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effective prospective DUR program can 

alert the pharmacist before dispensing 

that the patient is taking other 

medications, such as blood pressure or 

cough and cold medications that might 

have an additive sedating effect when 

taken with opioids. These prospective 

edits are effective only to the extent that 

the other potential interacting 

medications are in the patient’s 

prescription record, and not if the 

patient has obtained them from a nonpharmacy source. That is, the system 

can only send the alerts to the 

pharmacist if it includes all the 

prescription and non-prescription 

medications being taken by the patient. 

We believe states could take effective 

action to help prevent adverse medical 

results and possible OUD relapse, and 

increase coordination of care in patients 

with a history of OUD. We noted that 

we understand states need considerable 

flexibility when implementing these 

reviews to address complicated patient 

populations. The proposed prospective 

safety edits, automatic retrospective 

claims reviews, or a combination of 

these approaches, would help identify 

cases where a beneficiary is prescribed 

an opioid after the beneficiary has been 

prescribed one or more drugs used for 

MAT or has received an OUD diagnosis. 

Accordingly, we proposed that states 

would have flexibility to determine 

which of these DUR approaches the 

state would implement, including the 

flexibility to incorporate both into an 

effective DUR program. State flexibility 

also would extend to specifying the time 

period between the prior episode of 

MAT or OUD diagnosis (or most recent 

prior episode of MAT or OUD diagnosis) 

and the subject opioid prescription that, 

if not met, would trigger the alert (for 

example, an opioid prescription within 

24 months of the end of the most recent 

episode of MAT would trigger a 

prospective safety edit). Flexibility 

could also extend to diagnoses where 

opioid use after MAT is appropriate 

without compromising OUD treatment 

(for example, in end of life care or in 

cancer patients with severe pain 

resulting from their disease or that does 

not respond to alternative pain 

management options). 

In consideration of clinical 

recommendations to ensure appropriate 

MAT treatment, and to prevent opioid 

related abuse and misuse, we believe 

the proposed prospective safety edits 

and/or retrospective claim reviews are 

necessary to assure that prescriptions 

are appropriate, medically necessary, 

and not likely to result in adverse 

medical results, and to accomplish other 

purposes of the DUR program under 

section 1927(g) of the Act and of the 

SUPPORT Act. This proposed 

requirement is authorized by and 

expected to advance the purposes of 

section 1927(g) of the Act and is 

consistent with the purposes of section 

1004 of the SUPPORT Act. Accordingly, 

we proposed at § 456.703(h)(1)(vii)(A) 

that states be required to implement 

reviews to alert when the beneficiary is 

prescribed an opioid after the 

beneficiary has been prescribed one or 

more drugs used for MAT for an OUD 

or has been diagnosed with an OUD, 

within a timeframe specified by the 

state, in the absence of a new indication 

to support utilization of opioids (such as 

new cancer related pain diagnosis or 

entry into hospice care). In addition to 

helping ensure appropriate utilization of 

medications, we noted that these edits 

would assist in coordination of care, 

and potentially in improved treatment 

of pain. 

The following is a summary of the 

comments we received on these 

additional minimum standards for DUR 

programs related to MAT, and our 

responses. 

Comment: One commenter requested 

clarification as to whether DUR 

activities are applicable to beneficiaries 

who receive implantable or injectable 

formulations of medications for opioid 

use disorder (MOUD). Additionally, 

other commenters expressed concern 

that MOUD dispensed in an Outpatient 

Treatment Programs (OTPs) or MOUD 

administered in settings where 

regulations pertaining to CODs do not 

apply are vulnerable to adverse 

reactions that result from concurrent 

prescribing, particularly for 

beneficiaries receiving methadone. With 

respect to OTPs, this concern arises 

because methadone is generally paid for 

as part of a single bundled service when 

used in an OTP, and thus would not be 

a covered outpatient drug as a result of 

the limiting definition found at section 

1927(k)(3) of the Act; therefore, 

methadone use may not be detected by 

DUR systems designed to examine use 

of covered outpatient drugs. 

Response: We interpret the comment 

regarding MOUD as referring to 

medications used to treat opioid use 

disorders, more commonly referred to as 

medication-assisted treatment (MAT). 

Medications used in MAT—including 

methadone, naltrexone, and 

buprenorphine—are used to treat 

individuals who have opioid use 

disorders, such as opioid dependency. 

Section 1006(b) of the SUPPORT Act 

amended section 1902(a)(10)(A) of the 

Act to require state Medicaid plans to 

include coverage of MAT for OUD for 

categorically needy populations, added 

this new required benefit to the 

definition of medical assistance at 

section 1905(a)(29) of the Act, and 

added a definition of the coverage 

required under the new benefit at 

section 1905(ee)(1) of the Act. Section 

1905(a)(29) specifies that the new 

mandatory MAT benefit will be in effect 

for the period beginning October 1, 

2020, and ending September 30, 2025. 

CMS interprets section 1905(a)(29) 

and 1905(ee) of the Act to require that 

states include as part of this new 

mandatory benefit all forms of drugs 

and biologicals that FDA has approved 

or licensed for MAT to treat OUD. At 

this time, this includes the drugs 

methadone, buprenorphine, and 

naltrexone, as there are no biologicals 

currently licensed by FDA to treat OUD. 

Before the new mandatory MAT benefit 

took effect on October 1, 2020, states 

covered many of these MAT drugs (for 

all FDA approved and medicallyaccepted indications) under the optional 

benefit for prescribed drugs described at 

section 1905(a)(12) of the Act. 

A statutory change was made to 

sections 1905(a)(29) and 1905(ee) of the 

Act by section 2601 of the Continuing 

Appropriations Act of 2021, and other 

Extensions Act (Pub. L. 116–159), to 

specify that the Medicaid drug rebate 

program (MDRP) requirements in 

section 1927 of the Act shall apply to 

any MAT drugs or biologicals used to 

treat OUD described under the 

definition of the mandatory benefit at 

section 1905(ee)(1)(A) of the Act, that 

are furnished as medical assistance 

under sections 1905(a)(29) and section 

1902(a)(10)(A) of the Act, and are 

covered outpatient drugs, as that term is 

defined at section 1927(k)(7) of the Act. 

In determining whether such a MAT 

drug or biological satisfies the definition 

of a covered outpatient drug, such MAT 

drugs or biologicals are deemed 

prescribed drugs for such purposes. 

More specifically, these amendments 

ensure that MAT drugs and biologicals 

covered under the new mandatory 

benefit are included in the MDRP, make 

it possible for states to seek section 1927 

rebates and apply drug utilization 

management mechanisms (such as 

preferred drug lists and prior approval) 

with respect to these drugs and 

biologicals, and establish a 

manufacturer’s obligation to pay 

appropriate rebates and comply with all 

applicable drug product and drug 

pricing reporting and payment of 

rebates with respect to these drugs and 

biologicals. The change in law is 

effective as if included in the enactment 

of the SUPPORT Act, which was 

October 24, 2018. 

To the extent the injectable and 

implantable drugs used for MOUD 


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125https://www.nasmhpd.org/content/tacassessment-working-paper-2016-compilation-statebehavioral-health-patient-treatment. 

126https://www.hhs.gov/about/news/2020/07/13/ 

fact-sheet-samhsa-42-cfr-part-2-revised-rule.html. 

127https://store.samhsa.gov/product/TIP-63- 

Medications-for-Opioid-Use-Disorder-FullDocument/PEP20-02-01-006. 

satisfy the definition of a covered 

outpatient drug, such drugs would be 

subject to the same DUR edits and 

activities as other drugs that meet the 

definition of a covered outpatient drug. 

That is, states would be expected to 

include such drugs in the prospective 

claims edits and retrospective claims 

analysis that would be applicable to 

other covered outpatient drugs, and 

apply any of the opioid safety edits and 

other required DUR activities to the 

extent that these MAT drugs were also 

opioids. 

Comment: One commenter 

encouraged CMS to consider how the 

proposed DUR approaches complement 

or otherwise interact with other 

utilization management strategies, to 

ensure that states are not unduly 

restricting access to MOUD. 

Response: As noted above, MAT 

drugs, or medications for opioid use 

disorders, are covered under a new 

mandatory MAT benefit, but can also be 

covered outpatient drugs. MAT drugs 

that are also covered outpatient drugs 

can thus be subject to the same 

utilization management approaches, 

such as prior authorization, and DUR 

program safety edits and claims reviews, 

as can other covered outpatient drugs 

under section 1927 of the Act. Before 

the new mandatory MAT benefit took 

effect on October 1, 2020, MAT drugs 

were available to patients through the 

optional prescription drug benefit under 

section 1905(a)(12) of the Act as covered 

outpatient drugs, and evidence from 

state DUR program surveys indicate that 

these medications were made available 

by states to Medicaid beneficiaries 

under the optional benefit. We expect 

that access to these medications will 

increase given that they are now 

covered under the new MAT mandatory 

benefit. 

Comment: A few commenters urged 

CMS to clearly articulate the 

requirements for a MAT DUR program. 

Response: We are not requiring states 

to implement a DUR program specific to 

MAT medications. We proposed to 

require states to implement prospective 

safety edits, automatic retrospective 

claims reviews, or a combination of 

these approaches, as determined by the 

state, to identify when a beneficiary is 

prescribed an opioid after the 

beneficiary has been prescribed one or 

more drugs used for MAT for an OUD 

or has been diagnosed with an OUD, 

within a timeframe specified by the 

state, in the absence of a new indication 

to support utilization of opioids (such as 

new cancer related pain diagnosis or 

entry into hospice care). Accordingly, 

we proposed that states would have 

flexibility to determine which of these 

DUR approaches—prospective, 

retrospective, or both—the state would 

implement as part of an effective DUR 

program to identify these patients. State 

flexibility also would extend to 

specifying the time period between the 

prior episode of MAT or OUD diagnosis 

(or most recent prior episode of MAT or 

OUD diagnosis), as well as the 

identification of specific indications 

that could support a new opioid 

prescription (such as new cancer related 

pain diagnosis or entry into hospice 

care) and therefore not trigger a safety 

edit alert and/or retrospective review 

under the state’s implementation. We 

are finalizing this provision as proposed 

in § 456.703(h)(1)(vii)(A). 

Comment: One commenter supported 

the proposed minimum standards for 

MAT but noted that the proposals for 

prospective safety edit alerts and 

retrospective claims review may impact 

42 CFR part 2 confidentiality protection 

of those patients with Substance Use 

Disorder (SUD) patient records. Another 

commenter suggested that CMS and 

SAMHSA provide guidance on how the 

proposed opioid-related DUR 

requirements should be implemented in 

a manner that protects beneficiary 

information consistent with the 

requirements in part 2; this commenter 

was specifically concerned that claims 

data about services beneficiaries receive 

from part 2 providers might be disclosed 

to non-part 2 providers without patient 

consent. 

Response: We believe that it is 

essential for all states to comply with 42 

CFR part 2 regulations in order to 

uphold the confidentiality of patient 

medication information held by part 2 

providers. We further note the potential 

applicability of state privacy regulations 

and Health Information Portability and 

Accountability Act as referenced in the 

National Association of State Mental 

Health Program Directors Technical 

Assistance Coalition’s Compilation of 

State Behavioral Health Patient 

Treatment Privacy and Disclosure Laws 

and Regulations.125 The 42 CFR part 2 

regulations serve to protect substance 

use disorder patient records that are 

maintained in connection with the 

performance of part 2 programs (as 

defined in 42 CFR 2.11). The 42 CFR 

part 2 regulations have been revised, 

most recently in 2020, to facilitate better 

coordination of care activities with 

providers that are not participating in a 

part 2 program (considered non-part 2 

providers) in response to the opioid 

epidemic while maintaining patient 

confidentiality protections against 

unauthorized record use and disclosure 

pursuant to 42 CFR part 2. Section 3221 

of the Coronavirus Aid, Relief, and 

Economic Security Act (CARES Act) 

will require further revisions to part 2. 

CMS notes that part 2 records may be 

disclosed under certain conditions with 

patient consent and under various 

exceptions to patient consent 

requirements (for example, 42 CFR 

2.53). Because the application of part 2 

regulations to specific disclosures may 

be complex, state programs should 

consult legal counsel about DUR 

programs, applicable privacy laws and 

regulations and disclosure of patient 

identifying information. A SAMHSA 

Part 2 Revised Rule Fact Sheet is 

available for more information.126

Comment: One commenter 

encouraged CMS to provide more 

examples of when it may be appropriate 

to prescribe additional opioid 

medications to patients receiving MAT. 

Response: We included examples in 

the proposed rule focusing on end of life 

care or for cancer patients with severe 

pain resulting from their disease or that 

does not respond to alternative pain 

management options. We recommend 

exploring currently approved and 

accepted clinical practice guidelines to 

better understand these and other 

instances when it may be appropriate to 

prescribe additional opioid medications 

to patients receiving MAT, such as 

SAMHSA’s publication, MedicationAssisted Treatment For Opioid 

Addiction in Opioid Treatment 

Programs.127

Comment: One commenter suggested 

that certified registered nurse 

anesthetists’ (CRNAs’) approach to pain 

management may reduce the reliance on 

opioids as primary pain management as 

CRNAs manage chronic pain in a 

compassionate, patient-centered, 

holistic manner, using a variety of 

therapeutic, physiological, 

pharmacological, and interventional 

modalities. Additionally, this 

commenter stated that moving from a 

unimodal approach of using opioid 

drugs to manage chronic and acute pain 

to a more patient-centered, 

multidisciplinary, multimodal opioidsparing treatment approach optimizes 

patient engagement in their own pain 

care which would reduce the risk of 

patients developing SUDs. 

Response: We agree that all of a 

patient’s treating providers working in 


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128https://health.ri.gov/publications/guidelines/ 

provider/PatientViolatesPainAgreement.pdf. 

129Office of the Surgeon General, Facing 

Addiction in America: The Surgeon General’s 

Report on Alcohol, Drugs, and Health. Washington, 

DC: HHS, November 2016. Chapter 4, Early 

Intervention, Treatment, and Management of 

Substance Use Disorders. https://

addiction.surgeongeneral.gov/sites/default/files/ 

surgeon-generals-report.pdf. 

130SUPPORT for Patients and Communities Act 

section 1006(b), Public Law 115–271 (2018), https:// 

www.congress.gov/115/plaws/publ271/PLAW115publ271.pdf. 

131 ‘‘Understanding Naloxone.’’ Harm Reduction 

Coalition. Available at https://harmreduction.org/ 

issues/overdose-prevention/overview/overdosebasics/understanding-naloxone/. 

132NEJM Journal Watch: Summaries of and 

Commentary on Original Medical and Scientific 

Articles from Key Medical Journals, HHSrecommends-coprescribing-naloxone-with-opioidshigh. https://www.jwatch.org/fw114907/2018/12/ 

20/hhs-recommends-coprescribing-naloxone-withopioids-high. 

coordination have a role to play in 

reducing the reliance on opioids as a 

primary pain management modality. 

Section 1006(b) of the SUPPORT Act 

amended the Social Security Act to 

include a new MAT Medicaid benefit, 

and defined that benefit to not only 

include FDA approved drugs and 

licensed biological products to treat 

OUD, but also counseling services and 

behavioral therapies related to the 

provision of the drugs and biological 

products, and thus recognizes that 

providing these therapies could help to 

optimize treatment. 

Comment: One commenter noted that 

for chronic pain management, 

particularly if opioids are prescribed in 

the treatment, the clinician should 

discuss the risk of dependence and 

OUD, as well as enter into a pain 

management treatment agreement with 

the patient. 

Response: Generally, to the greatest 

extent possible, clinical decisionmaking should be undertaken in the 

context of the relationship between the 

provider and the patient and should 

consider nationally recognized clinical 

best practices relevant to the patient’s 

specific treatment needs. The provider 

should educate the patient on any 

prescribed treatment, to include both 

benefits and potential risks. Resources 

and guidance issued by public 

associations such as the PQA, NCQA, 

NQF; and federal agencies including, 

but limited to, the AHRQ, SAMHSA, 

and the CDC are available to support 

clinical best practices. Additionally, the 

safety edits required under this final 

rule can create an opportunity for 

additional review and patient 

consultation that could potentially 

result in a more clinically appropriate 

approach to treatment to forge a stronger 

provider/patient relationship. Another 

tool available to help foster a better a 

provider/patient relationship could be 

to employ the use of a pain management 

agreement (PMA) which allows for the 

documentation of understanding 

between a provider and patient. PMAs, 

when used, provide a means of 

facilitating care and improving 

communication between providers and 

their patients. It is important to note 

that the PMA is not designed as a 

contract, but rather a tool that sets forth 

important information about potential 

risks, benefits, safeguards, expectations, 

and patient and provider 

responsibilities. In the event the patient 

gets off-course with his or her treatment, 

the PMA provides a foundation for 

discussion as to the potential 

consequences and solutions.128

Comment: One commenter opined 

that CMS should encourage state 

Medicaid programs to remove coverage 

and formulary limits, prior 

authorization requirements, step 

therapy requirements, and other 

administrative burdens or barriers that 

may inappropriately delay or deny 

MAT, with respect to all medications 

approved by FDA for OUD. 

Response: MAT is an effective, 

comprehensive, and evidence-based 

treatment that is integral to addressing 

the nation’s opioid crisis. Section 

1006(b) of the SUPPORT Act amended 

the Social Security Act to require state 

Medicaid plans to cover MAT for OUD 

for the categorically needy populations. 

Evidence demonstrates that treatment 

for substance use disorders—including 

inpatient, residential, and outpatient 

treatment—is cost-effective compared 

with no treatment.129 Existing Medicaid 

authorities, as well as new opportunities 

afforded by the SUPPORT Act, are 

available to help states expand their 

SUD service continuum, which can 

include MAT. Additionally, to increase 

access to MAT for OUD, section 1006(b) 

of the SUPPORT Act requires states to 

provide Medicaid coverage of certain 

drugs and biological products, and 

related counseling services and 

behavioral therapy.130 Additionally, 

states may use utilization management 

controls to promote the efficient 

delivery of care and to control costs. 

In consideration of comments 

received, we are finalizing 

§ 456.703(h)(1)(vii)(A) as proposed, to 

require states to establish approaches to 

identify cases where a beneficiary is 

prescribed an opioid after the 

beneficiary has been prescribed one or 

more drugs used for MAT or had an 

OUD diagnosis within a specified 

number of days, without having a new 

indication to support utilization of 

opioids. 

b. Coprescribing or Codispensing of 

Naloxone When a Patient Is at High Risk 

for Opioid Overdoses 

To further implement section 

1927(g)(1) of the Act, and consistent 

with section 1004 of the SUPPORT Act, 

we proposed and sought comment on 

requiring states to establish prospective 

safety edit alerts, automatic 

retrospective claims review, or a 

combination of these approaches as 

determined by the state, to identify 

beneficiaries who could be at high risk 

of opioid overdose and should be 

considered for co-prescription or codispensing of naloxone with the goal of 

expanding appropriate utilization to 

individuals at risk of opioid overdose. 

As discussed below, based on comments 

received, we are modifying the proposal 

in this final rule by replacing the 

reference to naloxone with a reference 

to all FDA-approved opioid antagonist/ 

reversal agents so that the final 

regulation is broad enough to 

encompass additional such drugs, 

should FDA approve any others in the 

future. An opioid antagonist/reversal 

agent is a medication designed to 

rapidly reverse opioid overdose by 

binding to opioid receptors and 

reversing the effects of opioids. Opioid 

antagonist/reversal agents work quickly 

to restore normal respiration to a person 

whose breathing has slowed or stopped 

as a result of an opioid overdose, 

including both illicit and prescription 

opioids. However, opioid antagonist/ 

reversal agents only work if a person has 

opioids in their system; the medication 

has no effect if opioids are absent.131

Currently, naloxone is the only FDAapproved opioid antagonist/reversal 

agent, but it is possible that FDA could 

approve others in the future. 

The prescribing or co-prescribing of 

an opioid antagonist/reversal agent to 

patients at elevated risk for opioid 

overdose or for those who have 

overdosed on opioids can save lives.132

We recommended states consider ways 

to expand access to, and distribution 

and use of naloxone, or another opioid 

antagonist/reversal agent that may be 

approved in the future, when clinically 

appropriate. 

When implementing this safety edit or 

review, we noted that states should 


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133 Ibid. 

134 ‘‘CDC Guidelines for Prescribing Opioids for 

Chronic pain. ’’ Available at https://www.cdc.gov/ 

drugoverdose/pdf/guidelines_at-a-glance-a.pdf. 

135https://store.samhsa.gov/sites/default/files/ 

d7/priv/sma18-4742.pdf. 

136https://www.medicaid.gov/medicaid/ 

prescription-drugs/drug-utilization-review/drugutilization-review-annual-report/index.html. 

137 Ibid. 

determine standards for identifying 

individuals at high risk for opioid 

overdose, such as individuals who have 

been discharged from emergency 

medical care following opioid overdose, 

individuals who use heroin or misuse 

prescription pain relievers, as well as 

those who use high-dose opioids for 

long-term management of chronic 

pain.133 Before starting and periodically 

during continuation of opioid therapy, 

we stated that clinicians should 

evaluate risk factors for opioid-related 

harms. When prescribing opioids, the 

CDC guideline recommends clinicians 

should incorporate strategies to mitigate 

opioid risks, including considering 

offering an opioid antagonist/reversal 

agent when factors that increase risk for 

opioid overdose are present, such as 

history of overdose, history of SUD, 

higher opioid dosages (≥50 MME/day), 

or concurrent benzodiazepine use.134

We noted that we understand states 

need considerable flexibility when 

implementing this requirement to 

address a complex problem and 

proposed that states would have 

flexibility to determine which DUR 

approach the state would implement in 

an effective DUR program: either or both 

of prospective safety edits and/or 

retrospective claims reviews. Further, 

we proposed that states would have 

flexibility to determine the particular 

criteria they would use to identify 

which beneficiaries may be at high risk 

of opioid overdose such that they 

should be considered for co-prescription 

or co-dispensing of an opioid 

antagonist/reversal agent. 

In consideration of clinical 

recommendations to expand opioid 

antagonist/reversal agent use to prevent 

adverse medical events among those 

who are prescribed opioids or those 

who may be at high risk of opioid 

overdose or who have previously 

overdosed, we believe this requirement 

is necessary to ensure that at-risk 

individuals are receiving appropriate 

treatment that is not likely to result in 

adverse medical results, and to 

accomplish other purposes of the DUR 

program under section 1927(g) of the 

Act and of the SUPPORT Act. 

Accordingly, we proposed at 

§ 456.703(h)(1)(vii)(B) that states be 

required to implement prospective 

safety edit alerts, automatic 

retrospective claims reviews, or a 

combination of these approaches, as 

determined by the state, to identify 

when a beneficiary could be at high risk 

of opioid overdose and should be 

considered for co-prescription or codispensing of naloxone. As discussed 

below, we are modifying this 

requirement in this final rule to extend 

to any FDA-approved opioid antagonist/ 

reversal agent. As noted in the proposed 

rule, we anticipate that this requirement 

may help expand appropriate utilization 

of an opioid antagonist/reversal agent, 

including the facilitation of dispensing 

to individuals at risk of overdose. 

The following is a summary of the 

comments we received on additional 

minimum standards for DUR programs 

with respect to co-prescribing or codispensing of naloxone and our 

responses. 

Comment: One commenter suggested 

expanding the language in the proposed 

rule to include therapies that are not 

naloxone-based, suggesting ‘‘any FDAapproved opioid antagonist/reversal 

agent’’ in the place of naloxone. 

Response: We agree with the 

commenter. The language in our 

proposed rule referred to naloxone 

because this is the only FDA approved 

antagonist/reversal agent at this time. 

We do understand that other agents may 

be developed and receive FDA approval 

within this therapeutic class. We do not 

want to limit the new safety edit to 

simply one drug, should another opioid 

antagonist/reversal agent gain FDA 

approval in the future; such a limitation 

would be less effective in accomplishing 

our goal of promoting the appropriate 

co-prescribing and co-dispensing of 

such agents to help mitigate the effects 

of opioid overdose. To reflect the 

proactive intent of this rulemaking, we 

are implementing the commenter’s 

suggestion to revise the regulation text 

to refer to ‘‘any FDA-approved opioid 

antagonist/reversal agent.’’ 

Comment: A few commenters 

encouraged CMS to work with state 

Medicaid agencies and other 

commenters to develop recommended 

best practices for prescribers and 

pharmacists for communicating with 

patients about an opioid antagonist/ 

reversal agent. Some commenters 

recommended that CMS consider 

approaches to expand education on 

administering opioid antagonist/reversal 

agents and in recognizing the signs and 

symptoms of an overdose. 

Response: We agree with the 

commenters that best practices should 

be established for providers to educate 

beneficiaries and their families about 

opioid antagonist/reversal agents. 

Currently available relevant materials 

include the SAMHSA Opioid Overdose 

Prevention Toolkit.135 This toolkit 

provides advice for prescribers and 

beneficiaries and their families. 

Additionally, the toolkit encourages 

providers and others to learn about 

preventing and managing opioid 

overdose, promoting access to treatment 

for individuals who have a SUD, 

expanding access to naloxone, and it 

encourages prescribers to use PDMPs. 

This resource could be helpful to 

providers, including prescribers and 

pharmacists, in discussing opioid 

overdose risk and prevention with 

patients and their families and 

caregivers. 

Comment: Some commenters 

expressed the belief that pharmacists 

should be allowed to dispense any FDAapproved opioid antagonist/reversal 

agent over the counter (OTC) without a 

prescription and appropriate related 

indemnification should be extended to 

pharmacists. One commenter suggested 

CMS address prescription status, as well 

as the cost of opioid antagonist/reversal 

agents as barriers to utilization. 

Commenters also opined that Good 

Samaritan laws should be implemented 

in every state to shield health care 

personnel and lay persons from liability 

when administering an opioid 

antagonist/reversal agent to individuals 

suspected of opioid overdose. 

Response: Although this is not in 

scope of this rule, most states do allow 

pharmacists to dispense FDA-approved 

opioid antagonist/reversal agents. Fortyseven states (94 percent) allow 

pharmacists to dispense these agents 

independently or through collaborative 

practice agreements, standing orders, or 

other predetermined protocols 

developed by entities including State 

Boards of Professional Regulations, 

Boards of Pharmacy, and/or Boards of 

Medicine, as applicable.136 This allows 

greater access and less barriers to obtain 

these agents by patients and/or their 

family members and caregivers. 

Additionally, FDA-approved opioid 

antagonists/reversal agents are available 

without prior authorization in all 

states.137

Comment: Some commenters 

suggested standards for healthcare 

providers who administer naloxone or 

any FDA-approved opioid antagonist/ 

reversal agent such as educational 

programs designed to inform providers 

on proper administration and patient 

communication. 


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138https://store.samhsa.gov/sites/default/files/ 

d7/priv/sma18-4742.pdf. 

139Section 1902(oo)(3) of the Act, as added by 

section 1004 of the SUPPORT Act. 

Response: We agree that clinical 

standards for healthcare providers who 

administer any FDA-approved opioid 

antagonist/reversal could be useful and 

that providers should be properly 

educated on the correct use of drugs in 

this class, of which naloxone currently 

is the only one. The SAMHSA Opioid 

Overdose Prevention Toolkit is a 

resource available to states, providers, 

and beneficiaries; it contains helpful 

information regarding the proper use of 

naloxone.138

In consideration of comments 

received, with a limited exception, to 

further implement section 1927(g)(1) of 

the Act, and consistent with section 

1004 of the SUPPORT Act, we are 

finalizing, as proposed, 

§ 456.703(h)(1)(vii)(B) to require states 

to establish approaches to identify 

beneficiaries who could be at high risk 

of opioid overdose and should be 

considered for co-prescription or codispensing of naloxone. Based on 

comments received, we are revising the 

final regulation text in 

§ 456.703(h)(1)(vii)(B) to replace the 

proposed reference to naloxone with a 

reference to all FDA-approved opioid 

antagonist/reversal agents, so that the 

final regulation is broad enough to 

encompass additional such drugs, 

should FDA approve any others in the 

future. 

3. Exclusions 

The foregoing DUR requirements 

added to section 1902(oo) of the Act by 

section 1004 of the SUPPORT Act, 

which we proposed to implement along 

with additional related proposals under 

section 1927(g) of the Act at 

§ 456.703(h)(1)(i) through (h)(1)(vii)(B), 

do not apply for individuals who are 

receiving hospice or palliative care or 

those in treatment for cancer; residents 

of a long-term care (LTC) facility, a 

facility described in section 1905(d) of 

the Act (that is, an intermediate care 

facility for the intellectually disabled), 

or of another facility for which 

frequently abused drugs are dispensed 

for residents through a contact with a 

single pharmacy; or other individuals 

the state elects to treat as exempted from 

such requirements. 

We understand states need 

considerable flexibility when 

implementing these safety edits and 

claims reviews to address complicated 

patient populations. We noted our 

expectation that states would consult 

national guidelines and work with their 

P&T and DUR committees to identify 

other clinically appropriate patient 

populations for possible exclusion from 

the safety edits and claims reviews 

specified in § 456.703(h)(1)(i) through 

(vii), to avoid impeding critical access to 

needed medication when managing 

specific complex disease states. 

We proposed to implement this 

statutory exclusion at § 456.703(h)(2), 

such that states would not be required 

to implement the specified DUR 

requirements for these populations. 

However, while states are not required 

to comply with these requirements for 

these individuals, we clarified, and 

proposed to codify in the regulation, 

that states voluntarily may apply the 

prospective safety edits and claims 

review automated processes otherwise 

required under the SUPPORT Act to 

exempt populations.139

The following is a summary of the 

comments we received on the proposed 

exclusion standards for DUR programs, 

and our responses. 

Comment: One commenter expressed 

concern that more information would be 

needed from the states for the 

pharmacist and other providers to 

properly identify beneficiaries who are 

receiving hospice or palliative care, or 

who are residents in certain LTC 

facilities, to ensure exemptions from 

opioid safety edits and automated 

claims reviews are correctly applied. 

Response: We understand states have 

multiple patient information systems 

and data sources available to help 

identify beneficiaries that are exempt 

from opioid-related safety edits and/or 

claims reviews, including their claims 

systems, PDMPs, and information from 

the databases of pharmacy benefit 

managers with which the state (or the 

state’s managed care plans) has 

contracted to administer COD benefits 

for beneficiaries. As drug utilization 

review is performed through claims 

processing systems, linking to other 

sources to identify these populations 

should help states implement their 

safety edits and claims reviews. Ideally, 

a comprehensive DUR program that 

optimizes such system linkages would 

present safety edit information at the 

point of care, including to the provider 

(such as through an EHR system) before 

the prescription is written and to the 

pharmacist before it is dispensed. This 

way, clinical issues can be resolved 

proactively and the beneficiary will be 

able to receive his or her clinicallyindicated opioid therapy without undue 

disruption. 

We remind states that they should not 

impose a greater burden on medication 

access for individuals with disabilities 

residing in community-based settings 

than that applied to similar individuals 

residing in institutional settings, 

consistent with the Americans with 

Disabilities Act (ADA) and the Supreme 

Court’s decision in Olmstead v. L.C., 

527 U.S. 581 (1999). 

CMS will consider adding additional 

questions to the annual state and MCO 

DUR surveys that may help provide 

additional information on policies 

relating to patient populations that the 

state exempts from the opioid-specific 

DUR requirements, and how states 

implement such policies. 

Comment: One commenter suggested 

that CMS identify beneficiaries residing 

in assisted living facilities (ALFs) as a 

population that would be excluded from 

these opioid safety edits. Additionally, 

some commenters recommended that 

patients with sickle cell disease and 

cancer survivors should be considered 

as potential excluded populations. 

Other commenters requested that we 

delete from the regulatory exemption 

text proposed at § 456.703(h)(2) the 

following sentence: ‘‘While States are 

not required to apply these 

requirements for these individuals, 

States may elect to do so,’’ due to the 

commenters’ belief that the statement is 

inconsistent with the clear expression of 

the Congress that the specified groups 

should be exempt from the DUR 

requirements. 

Response: Under this final rule, states 

have flexibility to determine additional 

populations to exclude from the 

application of the required opioidrelated safety edits and claims reviews. 

This includes the flexibility to exclude, 

for example, patients with sickle cell 

disease or cancer survivors. 

Additionally, we proposed to codify in 

the regulation, that states voluntarily 

may apply prospective safety edits and 

claims review automated processes, as 

well as the program for monitoring 

antipsychotic use in children and the 

process for identifying potential fraud or 

abuse of controlled substances that are 

otherwise required under the SUPPORT 

Act to otherwise exempt populations. 

As stated, this is not a requirement; 

however, we believe beneficiaries in the 

excluded populations would benefit 

from the safety edits and claims reviews 

and other measures otherwise required 

under this final rule, to help ensure 

their opioid-related treatment is 

clinically appropriate and their risk of 

opioid-related harm is minimized. For 

example, beneficiaries in the excluded 

populations would also benefit from 

safety edits and reviews being finalized 

in this rule to help avert unintended 

therapeutic duplication and drug 

interactions, which would be more 


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140https://www.medicaid.gov/federal-policyguidance/downloads/cib080519-1004.pdf. 

likely to be missed if the beneficiaries 

were not subject to opioid-related safety 

edits and claims reviews. States would 

benefit from subjecting as broad a 

population as possible to opioid-related 

safety edits and claims reviews, too, as 

comprehensive data collection better 

ensures all populations are accounted 

for when further developing the DUR 

program and making other policy 

decisions. States that opt not to exclude 

otherwise excluded beneficiaries from 

the activities required under 

§ 456.703(h)(1)(i) through (vii) would do 

so under the authority of section 1927(g) 

of the Act, not the amendments made by 

the SUPPORT Act. Furthermore, as 

discussed above, the safety edits and 

claims reviews required under this final 

rule are not intended to prevent any 

beneficiary from receiving clinically 

appropriate prescribed treatment, but 

rather, to help ensure their prescribed 

treatment is appropriate and medically 

necessary. 

Comment: One commenter requested 

clearer guidance to ensure that safety 

edits and retrospective claims reviews, 

if voluntarily implemented by the state 

for otherwise exempt populations, 

achieve their intended goal without 

harming these excluded patients. 

Response: This final rule is intended 

to ensure that certain patient and 

clinical information is provided to 

prescribers and pharmacists to help 

ensure that beneficiaries who take 

opioids are taking them correctly and 

are not unnecessarily subjected to 

increased potential for clinical harm. 

State flexibility to voluntarily 

implement safety edits and claims 

reviews on otherwise excluded patient 

populations should help ensure 

coordinated patient care and avoid harm 

that could be associated with excessive 

or otherwise inappropriate use of 

opioids. We encourage states to consult 

nationally-recognized guidelines when 

implementing these safety edits, 

including but not limited to those 

issued by PQA, NCQA, NQF, and 

federal agencies such as AHRQ, 

SAMHSA, and the CDC. 

In consideration of the comments 

received, we are finalizing 

§ 456.703(h)(2) as proposed, specifying 

that the requirements in 

§ 456.703(h)(1)(i) through (vii) do not 

apply with respect to individuals 

receiving hospice or palliative care or 

treatment for cancer; individuals who 

are residents of long-term care facilities, 

intermediate care facilities for the 

intellectually disabled, or facilities that 

dispense frequently abused drugs 

through a contract with a single 

pharmacy; or other individuals the state 

elects to exempt. While states are not 

required to apply these requirements 

with respect to these individuals, states 

may elect to do so, pursuant to section 

1927(g) of the Act. 

4. Managed Care Requirements 

Pursuant to section 1902(oo)(1)(A)(ii) 

of the Act, as added by section 1004 of 

the SUPPORT Act, states also must 

ensure that their contracts with MCOs 

under section 1903(m) of the Act and 

MCEs under section 1905(t)(3) of the 

Act require that the MCOs or MCEs have 

safety edits, an automated review 

processes, a program to monitor 

antipsychotic medications in children, 

and fraud and abuse identification 

requirements as described in the June 

2020 proposed rule for individuals 

eligible for medical assistance under the 

state plan (or waiver of the state plan) 

who are enrolled with the entity, subject 

to the exclusions of individuals 

specified in section 1902(oo)(1)(C) of the 

Act. We noted that states must include 

these DUR provisions in managed care 

contracts by October 1, 2019. Although 

the foregoing provisions added by the 

SUPPORT Act address only MCOs and 

MCEs in the managed care context, we 

proposed also to extend these 

requirements to contracts with PAHPs 

and PIHPs under our authority in 

section 1902(a)(4) of the Act, under 

which existing PIHP and PAHP 

requirements are authorized. Thus, as 

proposed, states would be required to 

include PAHPs and PIHPs when 

uniformly implementing the updates 

and requirements specified in 

amendments made by section 1004 of 

the SUPPORT Act for all Medicaid 

managed care programs, regardless of 

whether the services are covered 

through a contract with an MCO, MCE, 

PIHP, or PAHP. 

As required by section 1004 of the 

SUPPORT Act, each Medicaid MCO and 

MCE within a state must also operate a 

DUR program that complies with 

specified requirements. We proposed to 

define MCEs in § 438.2 to have the 

meaning given to the term under section 

1932(a)(1)(B) of the Act, which defines 

the term to mean a Medicaid MCO, as 

defined in section 1903(m)(1)(A), that 

provides or arranges for services for 

enrollees under a contract pursuant to 

section 1903(m) of the Act, or a primary 

care case manager, as defined in section 

1905(t)(2) of the Act. Managed care 

regulations at § 438.3(s)(4) require 

Medicaid managed care DUR programs 

in which an MCO, PIHP, or PAHP 

contracts to provide coverage for CODs 

to operate consistently with section 

1927(g) of the Act and part 456, subpart 

K, and that state contracts must be 

updated to include these requirements. 

We proposed to amend the regulation at 

§ 438.3(s) introductory text and (s)(4) 

and (5) to require that MCEs comply 

with the requirements in section 

1902(oo)(1)(A) of the Act as 

implemented in these proposed 

regulations, similar to MCOs, PIHPs, 

and PAHPs. 

Although no comments were 

received, we are not finalizing our 

proposed definition of managed care 

entities and MCE in § 438.2 and we are 

finalizing amendments to § 438.3(s) 

introductory text and (s)(4) and (s)(5) 

replacing all proposed references to 

MCE to ‘‘PCCM’’ in the final version of 

§ 438.2(s) to implement our proposal 

that PCCMs be added to the list of 

managed care plans that must comply 

with § 438.3(s)(4) and (5). Because MCO 

and PCCM are already defined terms, 

we believe it would be simpler and less 

potentially confusing to add a reference 

to PCCM in each of the amended 

provisions, rather than define MCE as a 

new term that would only group two 

already-defined entity types. No 

substantive change in meaning from the 

proposal is intended by this change in 

the final rule. 

5. State Plan Amendment (SPA) 

Requirements 

Section 1004 of the SUPPORT Act 

amended the state plan requirements in 

section 1902 of the Act to include a new 

paragraph (a)(85), which requires the 

state plan to provide that the state is in 

compliance with the new drug review 

and utilization requirements set forth in 

section 1902(oo) of the Act, as also 

added by the SUPPORT Act. The 

SUPPORT Act also requires all states to 

implement these requirements by 

October 1, 2019, and to submit an 

amendment to their state plan no later 

than December 31, 2019, consistent with 

the SPA requirements in 42 CFR part 

430, subpart B, to describe how the state 

addresses these provisions in the state 

plan. States are also expected to give 

appropriate tribal notification, as 

required, if applicable. Guidance 

regarding state plan amendment 

requirements was issued to states in a 

CMS informational bulletin in August 

2019.140 In the proposed rule, we noted 

that, if the proposed provisions 

implementing section 1004 of the 

SUPPORT Act and section 1927(g) of 

the Act were finalized, then an 

additional SPA potentially could be 

needed to ensure that state plans are in 

compliance with the applicable final 

regulations. We stated that we would 


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141https://www.medicaid.gov/medicaid/ 

prescription-drugs/drug-utilization-review/drugutilization-review-annual-report/index.html. 

expect to provide related guidance in 

connection with any final rule. 

The following is a summary of the 

comments we received on SPA 

requirements, and our responses. 

Comment: One commenter noted that 

CMS is proposing a number of 

minimum DUR standards that restate 

the requirements of the SUPPORT Act, 

with which states have already 

submitted state plan amendments to 

comply. This commenter noted that 

states should be required to follow their 

approved state plans, which the state 

can seek to further amend based on best 

practices in medicine. This commenter 

also opined that CMS is overstepping its 

authority to regulate by proposing to 

prescribe other DUR practices in 

regulation beyond those that are 

included in the SUPPORT Act. 

Response: We agree with the 

commenter that all states have 

submitted state plan amendments to 

comply with the amendments made by 

section 1004 of the SUPPORT Act, and 

all have been approved. Additionally, 

the state plan must be amended as 

necessary so that it accurately and 

comprehensively describes how the 

state complies with the requirements 

added to section 1902 of the Act by 

section 1004 of the SUPPORT Act, as 

well as the requirement in section 

1902(a)(54) of the Act that a state plan 

that includes coverage of CODs must 

comply with the applicable 

requirements of section 1927 of the Act. 

We do not believe that we have 

exceeded our statutory authority with 

respect to the proposed requirements, 

which we are finalizing as discussed 

elsewhere in this final rule, for safety 

edits and claims reviews beyond those 

that are expressly required pursuant to 

amendments made by the SUPPORT 

Act. To further implement section 

1927(g)(1) of the Act, which requires 

that a state DUR program assures that 

covered outpatient drugs are 

appropriate, medically necessary, and 

not likely to result in adverse events, 

and consistent with section 1004 of the 

SUPPORT Act, we proposed to require 

states to establish several new safety 

edits and/or claims reviews. 

Specifically, these requirements are: To 

develop prospective safety edit alerts, 

automatic retrospective claims review, 

or a combination of these approaches as 

determined by the state to identify cases 

where a beneficiary is prescribed an 

opioid after the beneficiary has been 

prescribed one or more drugs used for 

MAT or had an OUD diagnosis; and 

where beneficiaries who could be at 

high risk of opioid overdose should be 

considered for co-prescription or codispensing of any FDA-approved opioid 

antagonist/reversal agent. This final rule 

affords states flexibility in designing 

and implementing required safety edits 

and claims reviews in the manner the 

state determines would be best adapted 

to the circumstances in the state, 

including the particular needs of the 

state’s Medicaid beneficiaries. These 

requirements implement section 1927 of 

the Act, and while consistent with 

them, do not directly implement 

amendments made by section 1004 of 

the SUPPORT Act. 

6. Reporting Requirements 

Consistent with section 1927(g)(3)(D) 

of the Act, we require each state 

Medicaid agency to submit to us an 

annual report on the operation of its 

Medicaid DUR program. Under 

§ 456.712(a), the state must require the 

DUR Board to prepare and submit, on an 

annual basis, a report to the state 

Medicaid agency. Under § 456.712(b), 

each state Medicaid agency must in turn 

submit this report to us, as well as 

specified additional information, 

including but not limited to 

descriptions of the nature and scope of 

the state’s prospective and retrospective 

DUR programs, detailed information on 

the specific DUR criteria and standards 

in use, a description of the actions taken 

to ensure compliance with 

predetermined standards requirements 

in § 456.703, a summary of the 

educational interventions used and an 

assessment of their effect on quality of 

care, and an estimate of the cost savings 

generated as a result of the DUR 

program. We have compiled state FFS 

Medicaid DUR annual reports since 

1995 and have published them on 

Medicaid.gov since 2012. Since 2016, 

§ 438.3(s)(4) requires any MCO, PIHP or 

PAHP that covers CODs to operate a 

DUR program that complies with 

section 1927(g) of the Act and 42 CFR 

part 456, subpart K, as though these 

requirements applied to the MCO, PIHP, 

or PAHP instead of the state, including 

requirements related to annual DUR 

reporting. Given the commercial nature 

of many MCEs, incorporation of 

information posted to Medicaid.gov 

provides new considerations with 

regard to public disclosure of 

information received by CMS. 

In an effort to share and encourage 

innovative and collaborative practices, 

we also proposed to publish all 

information received in annual DUR 

reports from FFS and managed care 

programs on a CMS website. We 

proposed to add new paragraph (c) to 

§ 456.712 to provide that all FFS and 

managed care DUR reports received by 

CMS under § 456.712(b) and, as 

applicable, under § 438.3(s), will be 

publicly posted on a website maintained 

by CMS for the sharing of reports and 

other information concerning Medicaid 

DUR programs. 

The following is a summary of the 

comments we received on the proposed 

minimum standards for DUR program 

reporting requirements, and our 

responses. 

Comment: One commenter 

recommended CMS provide a 

standardized template for Medicaid 

MCOs reporting DUR program 

information, to help ease administrative 

burdens. 

Response: CMS does currently 

provide a standardized template for 

Medicaid MCOs to complete. In 

response to section 1004 of the 

SUPPORT Act, revised and additional 

survey questions have been 

incorporated to the annual MCO survey 

to address recently enacted provisions. 

Reports can be accessed on 

www.Medicaid.gov.141

In consideration of comments 

received, CMS is finalizing § 456.712(c) 

as proposed, to provide that all FFS and 

managed care DUR reports received by 

CMS under § 456.712(b) and, as 

applicable, pursuant to § 438.3(s), will 

be publicly posted on a website 

maintained by CMS for the sharing of 

these reports and other information 

concerning Medicaid DUR programs. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. With respect to the PRA and 

this section of the preamble, collection 

of information is defined under 5 CFR 

1320.3(c) of the PRA’s implementing 

regulations. 

To fairly evaluate whether a 

collection of information should be 

approved by OMB, section 3506(c)(2)(A) 

of the Paperwork Reduction Act of 1995 

requires that we solicit comment on the 

following issues: 

• The need for the collection of 

information and its usefulness in 

carrying out the proper functions of our 

agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 


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affected public, including automated 

collection techniques. 

Our June 2020, proposed rule (85 FR 

37286) solicited public comment on 

each of these issues for our proposed 

information collection requirements, 

burden estimates, and assumptions. 

PRA-related comments were received 

for ICR #1 Regarding State Plan 

Requirements, Findings, and 

Assurances and ICR #3 Regarding the 

Payment of Claims 18. Summaries of the 

public comments and our response can 

be found below under the respective 

ICR. We did not receive any PRA-related 

comments for ICR #2 Regarding 

Requirements for States. 

A. Wage Estimates 

To derive average costs, we used data 

from the U.S. Bureau of Labor Statistics’ 

May 2018 National Occupational 

Employment and Wage Estimates 

(http://www.bls.gov/oes/current/oes_

nat.htm). Table 3 presents the mean 

hourly wage, the cost of fringe benefits 

and overhead (calculated at 100 percent 

of salary), and the adjusted hourly wage. 

TABLE 3—NATIONAL OCCUPATIONAL EMPLOYMENT AND WAGE ESTIMATES

Occupation title Occupation 

code 

Mean 

hourly wage 

($/hr) 

Fringe 

benefits and 

overhead 

($/hr) 

Adjusted 

hourly wage 

($/hr) 

Chief Executives .............................................................................................. 11–1011 93.20 93.20 186.40 

Data Entry and Information Processing Workers ............................................ 43–9020 17.52 17.52 35.04 

General Operations Manager .......................................................................... 11–1021 59.15 59.15 118.30 

We are adjusting our employee hourly 

wage estimates by a factor of 100 

percent since fringe benefits and 

overhead costs vary significantly from 

employer to employer, and because 

methods of estimating these costs vary 

widely from study to study. 

Nonetheless, we believed that doubling 

the hourly wage to estimate total cost is 

a reasonably accurate estimation 

method. 

Revised Wage and Cost Estimates: 

While our proposed rule’s costs were 

based on BLS’s May 2018 wages, this 

final rule’s cost estimates are based on 

BLS’s more recent May 2019 wages. 

Changes to BLS’ mean hourly wage 

figures are presented in the Table 4. 

TABLE 4—COMPARISON OF PROPOSED AND FINAL RULE MEAN WAGE DATA

Occupation title Occupation 

code 

CMS–2482–P: 

May 2018 

($/hr) 

CMS–2482–F: 

May 2019 

($/hr) 

Difference 

($/hr) 

Chief Executives .............................................................................................. 11–1011 96.22 93.20 ¥3.02 

Data Entry and Information Processing Workers ............................................ 43–9020 17.05 17.52 +0.47 

General Operations Manager .......................................................................... 11–1021 59.56 59.15 ¥0.41 

B. Information Collection Requirements 

(ICRs) 

1. ICRs Regarding State Plan 

Requirements, Findings, and 

Assurances (§ 447.518(d)(2) and (3)) 

The following changes will be 

submitted to OMB for approval under 

control number 0938–1385(CMS– 

10722). 

Under section 1902(a)(30)(A) the Act, 

we are granted the authority to require 

that methods and procedures be 

established by states relating to the 

utilization of, and the payment for, care 

and services available under the state 

plan process (including but not limited 

to utilization review plans) as may be 

necessary to safeguard against 

unnecessary utilization of such care and 

services and to assure that state 

payments to providers of Medicaid 

services are consistent with efficiency, 

economy, and quality of care. 

To that end, as part of the state plan 

approval process relative to the CMS 

authorized VBP SRA, we are finalizing 

new reporting requirements that would 

affect the 51 state Medicaid programs 

(the 50 states and the District of 

Columbia). Specifically, a state 

participating in CMS authorized 

supplemental rebate VBP arrangements 

will be required to report data described 

in § 447.518(d)(2) and (3) on an annual 

basis within 60 days of the end of each 

year, as well as cumulative data if a 

CMS authorized SRA VBP program 

ended in that year. The reported data 

must include: The state name; NDC(s) 

(for drugs covered under the CMS 

authorized SRA VBP); product FDA list 

name; number of prescriptions; cost to 

the State to administer the CMS 

authorized SRA VBP (for example: 

Systems changes, tracking evidence or 

outcomes-based measures, etc.); and the 

total savings generated by the 

supplemental rebate due to the CMSauthorized SRA VBP. The reporting 

requirements will be applicable to both 

FFS and MCO COD claims. 

We estimate it would take an 

additional 6 hours at $118.30/hr for a 

general operations manager to collect 

the SRA VBP drug utilization 

information when due annually (we will 

choose the quarter in which the annual 

data will be due), and submit the report 

to CMS. In aggregate we estimate an 

ongoing annual burden of 306 hours (6 

hr/report × 1/year × 51 respondents) at 

a cost of $36,200.60 (306 hr × $118.30/ 

hr). 

Other than our adjusted costs as 

discussed above under Wage Estimates, 

our proposed requirements and burden 

estimates are being finalized in this rule 

without change. 

Comment: Several commenters raised 

concerns about the proposed data 

reporting requirements for states 

participating in CMS-authorized SRA 

VBP arrangements and the burden it 

may place on state Medicaid agencies, 

such as additional administrative 

expenses. A few commenters noted that 

if more CMS-authorized SRA VBP 

contracts are signed between 

manufacturers and state Medicaid 

agencies, the administrative burden may 

become too great for current state 

Medicaid staff and require additional 

resources, such as additional staff, 


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system changes, and physical office 

space. Another commenter suggested 

that CMS delay finalizing the proposal 

for states to provide CMS specific data 

elements associated with CMSauthorized VBP SRAs to ensure that the 

data elements can be easily collected 

and would not unintentionally create 

additional administrative burden to 

state Medicaid agencies in collecting 

and reporting the data elements. 

Response: This final regulation does 

not require that states participate in 

CMS authorized VBP SRAs with 

manufacturers, or any other VBP 

arrangement. Rather, this regulation 

addresses the challenges faced by 

manufacturers and states regarding the 

impact of the VBP arrangements on 

MDRP price reporting obligations and 

the regulatory challenges that may 

impede manufacturers and payer 

progress in structuring and 

implementing VBP arrangements. 

However, we recognize that states may 

encounter administrative burden 

associated with CMS-authorized SRA 

VBP arrangements. This is one of the 

reasons that we have requested that 

states provide specific data elements 

associated with participating in VBP 

arrangements via CMS-authorized SRAs, 

so that we can determine how we can 

help states reduce these burdens, which 

may facilitate their contracting with 

manufacturers. 

2. ICRs Regarding Requirements for 

States (§ 447.511(b), (d) and (e)) 

The following changes will be 

submitted to OMB for approval under 

control number 0938–0582 (CMS–R– 

144). Subject to renewal, the control 

number is currently set to expire on 

June 30, 2023. 

Under § 447.511(b) states, territories, 

and the District of Columbia will be 

required to ensure by certification that 

the quarterly rebate invoices sent to 

manufacturers that participate in the 

MDRP no later than 60 days after the 

end of each rebate period via CMS–R– 

144 (Quarterly Medicaid Drug Rebate 

Invoice), mirrors the data sent to us. 

This rule does not impose any changes 

to the CMS–R–144 form. 

Under § 447.511(d) states will be 

required to certify that their SDUD 

meets the requirements specified under 

§ 447.511(e) via a certification 

statement. We believe the certification 

will not impose a significant burden as 

we will provide systems access to state 

certifiers to log in once per quarter to 

certify their SDUD report. Certifiers 

would have to apply for a CMS user ID 

and password, and keep current with 

required annual computer-based 

training, as current state staff with 

access to our systems must do. To 

comply with the certification 

requirements, states must already have 

system edits in place to find and correct 

SDUD outliers prior to reporting to 

manufacturers and CMS. 

We estimate it would take 5 hours at 

$186.40/hr for the State Medicaid 

Director, Deputy State Medicaid 

Director, another individual with 

equivalent authority, or an individual 

with directly delegated authority from 

one of the above to obtain current CMS 

systems access. In aggregate we estimate 

a one-time system ID/password access 

burden of 280 hours (5 hr × 56 

respondents) at a cost of $52,192 (280 hr 

× $186.40/hr). 

We also estimate an additional annual 

burden of 2 hours (or 30 minutes/ 

quarter) at $186.40/hr for a chief 

executive to certify such data and to add 

the state data certification language in 

their submission. In aggregate we 

estimate an annual burden of 112 hours 

(2 hr × 56 respondents) at a cost of 

$20,877 (112 hr × $192.44/hr). 

Other than our adjusted costs as 

discussed above under Wage Estimates, 

our proposed requirements and burden 

estimates are being finalized in this rule 

without change. 

3. ICRs Regarding the Payment of 

Claims (§ 433.139(b)(2), (b)(3)(i), and 

(b)(3)(ii)(B)) 

The following changes will be 

submitted to OMB for approval under 

control number 0938–1265 (CMS– 

10529). Subject to renewal, the control 

number is currently set to expire on 

April 30, 2021. It was last approved on 

June 10, 2019, and remains active. 

This final rule would implement 

provisions of BBA 2018 which includes 

several provisions that modify COB and 

TPL in both statute and regulation 

related to special treatment of certain 

types of care and payment in Medicaid 

and Children’s Health Insurance 

Program Reauthorization Act of 2009 

(CHIPRA) (Pub. L. 111–3, enacted 

February 4, 2009). Section 53102 of BBA 

2018 amended the TPL provision at 

section 1902(a)(25) of the Act. Effective 

February 9, 2018, section 53102(a)(1) of 

the BBA 2018 amended section 

1902(a)(25)(E) of the Act to require 

states to cost avoid claims for prenatal 

care for pregnant women including 

labor and delivery and postpartum care, 

and to allow the state Medicaid agency 

90 days instead of 30 days to pay claims 

related to medical support enforcement 

services, as well as requiring states to 

collect information on TPL before 

making payments. Effective April 18, 

2019, section 7 of the MSIAA amended 

section 1902(a)(25)(E) of the Act to 

allow 100 days instead of 90 days to pay 

claims related to medical support 

enforcement services, as well as 

requiring all states, the District of 

Columbia, and the territories (56 

respondents) to collect information on 

TPL before making payments. 

Additionally, effective October 1, 

2019, section 53102(a)(1) of the 

Bipartisan Budget Act of 2018 amended 

section 1902(a)(25)(E) of the Act, to 

require a state to make payments 

without regard to third party liability for 

pediatric preventive services unless the 

state has made a determination related 

to cost-effectiveness and access to care 

that warrants cost avoidance for 90 

days. 

Under the authority in section 

1902(a)(25)(A) of the Act, our 

regulations at part 433, subpart D, 

establishes requirements for state 

Medicaid agencies to support the COBs 

effort by identifying TPL. Section 

433.139(b)(2), (b)(3)(i), and (b)(3)(ii)(B) 

detail the exception to standard COB 

cost avoidance by allowing pay and 

chase for certain types of care, as well 

as the timeframe allowed prior to 

Medicaid paying claims for certain 

types of care. Title XIX of the Act 

requires state Medicaid programs to 

identify and seek payment from liable 

third parties, before billing Medicaid. 

We estimate it would take 1 hour at 

$35.040/hr for a data entry/information 

processing worker to collect information 

on TPL and report that information to 

CMS on CMS–64 (approved by OMB 

under the aforementioned OMB control 

number and CMS ID number) on a 

quarterly basis. In aggregate we estimate 

an annual burden of 224 hours (1 hr/ 

response × 4 responses/year × 56 

respondents) at a cost of $8,550 (224 hr 

× $35.04/hr). 

Other than our adjusted costs as 

discussed above under Wage Estimates, 

our proposed requirements and burden 

estimates are being finalized in this rule 

without change. 

C. Summary of Finalized Requirements 

and Annual Burden Estimates 

Table 5 sets out our annual burden 

estimates. 


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TABLE 5—SUMMARY OF ANNUAL REQUIREMENT AND BURDEN

Section under title 

42 of the CFR 

Number of 

respondents 

Total 

responses 

(per year) 

Time per 

response 

(hours) 

Total time 

(hours) 

Labor rate 

($/hr) 

Total cost 

($) 

OMB control number 

(CMS ID No.) 

§ 447.518(d)(1) and 

(2).

51 51 6 ........................ 306 118.30 ............... 36,200 0938–1385 (CMS–10722) 

§ 447.511 ............... 56 56 5 ........................ 280 186.40 ............... 52,192 0938–0582 (CMS–R–144) 

§ 447.518(d) (1) 

and (2).

51 51 6 ........................ 306 18.3 ...................

0 ........................

36,200 0938–1385 (CMS–10722) 

§ 447.511 ............... 56 224 0.5 ..................... 112 186.40 ............... 20,877 0938–0582 (CMS–R–144) 

§ 433.139(b)(2), 

(b)(3)(i), and 

(b)(3)(ii)(B).

56 224 1 ........................ 224 35.04 ................. 7,849 0938–1265 (CMS–10529) 

Total ............... 56 555 Varies ................ 922 Varies ................ 117,118 n/a 

IV. Regulatory Impact Statement 

A. Statement of Need 

This final rule will implement: 

• Changes to section 1927 of the Act; 

• Statutory changes from the 

Medicaid Services Investment and 

Accountability Act of 2019 (Pub. L. 

116–16, enacted April 18, 2019), BBA 

2018 and the Affordable Care Act; 

• Section 602 of BBA 2015, which 

amended section 1927(c)(3) of the Act; 

• Section 2501(d) of the Affordable 

Care Act, which added section 

1927(c)(2)(C) of the Act; 

• Section 1927(b)(2)(A) of the Act 

requiring states to report to each 

manufacturer not later than 60 days 

after the end of each rebate period; 

• Changes and additions to sections 

1902 and 1927(g)(1) of the Act as set 

forth by section 1004 of the SUPPORT 

Act; 

• Title XIX of the Act and section 7 

of the Medicaid Services Investment 

and Accountability Act of 2019 

amending section 1902(a)(25)(E) of the 

Act ((§ 433.139(b)(2), (b)(3)(i), and 

(b)(3)(ii)(B)); and 

• Changes made by section 1603 of 

Public Law 116–59, the Continuing 

Appropriations Act, 2020, and Health 

Extenders Act of 2019 (Health Extenders 

Act), which amended sections 

1927(k)(1) and 1927(k)(11) of the Act. 

B. Overall Impact 

We have examined the impact of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Act, section 

202 of the Unfunded Mandates Reform 

Act of 1995 (March 22, 1995; Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999) and 

Executive Order 13771 on Reducing 

Regulation and Controlling Regulatory 

Costs (January 30, 2017). 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). A 

regulatory impact analysis (RIA) must 

be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). We 

believe that this rule does reach the 

economic threshold and thus is 

considered a major rule. 

We received the following comments 

regarding the impact of this rule: 

Comment: A few commenters 

disagreed with CMS’ conclusion that the 

proposed rule did not reach the 

necessary threshold for economically 

significant effects (of $100 million or 

more in any 1 year), and therefore, did 

not require a regulatory impact analysis. 

The commenters noted that the 

proposed changes to best price, line 

extension, drug rebate payments, drug 

pricing reporting requirements, and 

DUR would greatly impact state 

Medicaid agencies and manufacturers 

and would meet the financial threshold 

for a regulatory impact analysis. A few 

commenters suggested that CMS 

conduct a regulatory impact analysis 

prior to publication of a final rule or 

withdraw the proposed rule in order to 

conduct a regulatory impact analysis. 

Several commenters expressed 

concern that the proposed rule does not 

include an impact analysis of the 

proposed changes on state Medicaid 

programs or Medicaid program 

spending specific to the proposed 

changes or potential decreases to the 

Medicaid manufacturer rebate amounts 

and increase to Medicaid drug costs. 

The commenters requested CMS analyze 

the proposed changes to best price 

reporting and how it may impact state 

Medicaid programs. One commenter 

also requested that CMS provide 

financial impact estimates on states’ 

rebates due to their belief that this will 

ensure transparency and provide states 

adequate time to address budget 

shortfalls created from the proposed 

rule. A few commenters expressed 

concern that CMS did not conduct an 

impact analysis of the proposed VBPrelated regulations on the U.S. 

healthcare system. 

Response: For the following reasons, 

we agree with the commenters that a 

regulatory impact analysis is necessary. 

The projections below are based on the 

assumptions and projections for 

Medicaid expenditures in the 

President’s FY 2021 Budget. As with 

any projections of health care spending 

and changes to health care regulations, 

these projections are uncertain and 

impacts could be higher or lower than 

projected here. In addition, these 

projections do not account for any 

impacts related to COVID–19, which has 

had a major impact on health care 

spending and coverage in 2020. 

• Implementation of Minimum DUR 

Standards: The requirement under 

section 1927 of the Act to provide for 

DUR (prospective and retrospective) for 

CODs to assure that prescriptions (1) are 

appropriate, (2) are medically necessary, 

and (3) are not likely to result in adverse 

medical results, is longstanding. Under 

our authority to implement section 

1927(g) of the Act and the SUPPORT 

Act, to ensure the appropriate use of 

prescription opioids, the minimum 

standards for DUR in this final 

regulation, including standards related 

to MAT and co-prescribing or codispensing of any FDA-approved opioid 

antagonist/reversal agent, have already 

been adopted by state Medicaid 

programs as reflected in our most recent 


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142https://www.medicaid.gov/medicaid/ 

prescription-drugs/downloads/2019-dur-ffssummary-report.pdf. 

DUR survey.142 Therefore, such DUR 

standards and the addition of minimum 

standards as set forth under this rule 

will not have a substantial impact on 

state Medicaid programs. Furthermore, 

these standards establish a baseline for 

minimally adequate DUR programs that 

help ensure prescribed drugs are 

appropriate, medically necessary, and 

not likely to result in adverse medical 

results, which ultimately may result in 

savings to the states and Federal 

government. 

• Line Extension and New 

Formulation: Since the line extension 

provision came into effect on January 1, 

2010, manufacturers have been making 

reasonable assumptions as to the 

meaning of line extension at section 

1927(c)(2)(C) of the Act, and where 

appropriate, have been permitted to use 

such reasonable assumptions in their 

determination of whether their drug 

qualifies as a line extension. Thus, 

manufacturers have been applying the 

alternative rebate calculation approach 

for ten years to determine their rebate 

obligations for drugs that are line 

extensions. The economic impact of the 

new policies for line extensions would 

be dependent on the change in the 

number of drugs that are reported to us 

as line extensions, the differences 

between the standard rebate amount and 

the alternative rebate amount that is 

calculated for that line extension drug, 

and that the impact of the new policies 

on the incentives to bring new 

formulations of existing drugs to market 

that represented true advancements in 

treatment of particular conditions. 

Notably, only 1.5 percent of all drugs 

that are reported to the Medicaid Drug 

Rebate Program (MDRP), or 408 drugs, 

are currently classified by their 

manufacturer as a line extension. This 

reporting is based on the manufacturer 

making its own reasonable assumptions 

that the new formulation of their drug 

is a line extension. 

With respect to innovation, we also 

note that since we added a specific 

indicator in the Drug Data Reporting 

(DDR) system in 2016 for manufacturers 

to self-identify drugs that are line 

extensions, the rate at which the 

number of line extension drugs reported 

has been relatively stable, but 

increasing, thereby providing evidence 

that the line extension policies in 

existence have not resulted in a sharp 

change in the number of line extensions 

brought to market by manufacturers. For 

example, in 2016, 320 line extensions 

were reported to us, 360 in 2017, 373 in 

2018, 389 in 2019, and 397 in 2020. 

We have reviewed the impacts of the 

final regulatory definition of line 

extension on Medicaid drug rebates. 

The final rule clarifies the definition of 

‘‘line extension’’ drugs. Drugs classified 

as line extensions are subject to an 

alternative rebate. The additional rebate 

amounts under the alternative rebate are 

collected entirely by the federal 

government. To calculate this impact, 

we determined which drugs were likely 

to be classified as line extensions under 

the definition in this final rule. We 

reviewed the top 100 drugs by total 

spending (from data in the second 

quarter of 2020 in the MDR), and then 

identified which of those drugs would 

be defined as line extension drugs under 

the definition in the final rule. There 

were 17 drugs identified of the top 100 

that would likely be classified as line 

extensions, which would not now be 

currently classified as line extensions 

under the statutory definition of line 

extension. 

We then calculated the alternative 

rebate per unit for these drugs (defined 

as the inflationary or additional rebate 

divided by the AMP for the original 

drug, multiplied by the AMP of the line 

extension drug). Note that only 6 of the 

17 drugs had alternative rebates that 

were higher than the standard rebate. 

For these 6 drugs, the rebates would 

increase by 6.5 percent and reduce 

spending net of rebates by 19.3 percent. 

We estimate that this would represent 

an increase of about 1.1 percent on 

rebates for the top 100 drugs, while 

decreasing net drug spending by 3.3 

percent. We extrapolated the estimates 

on these drugs to the impact on all 

Medicaid drug spending. This assumes 

that the number of drugs classified as 

line extensions under the new 

regulatory definition of line extension, 

and the relative impacts on those drugs 

for the rest of the brand-name drug 

market is comparable to the top 100 

drugs; it is possible that the impact on 

the rest of the drug market could be 

greater than or less than we have 

estimated here. 

Total 

spending 

Total 

rebates 

Net 

spending 

Change in 

rebates due 

to line 

extension 

definition 

Percentage 

change in 

rebates 

Percentage 

change 

in net 

spending 

Top 100 drugs .................................................................. $25,265 $18,894 $6,371 $209 1.1 ¥3.3 

Top 100 drugs identified as line extensions .................... 4,295 3,212 1,083 209 6.5 ¥19.3 

All drug spending ............................................................. 86,017 39,802 46,215 381 1.0 ¥0.8 

The table below shows the projected 

impacts by fiscal year in millions of 

dollars. 

Lower bound 2021 2022 2023 2024 2025 2021–2025 

Federal government ......................................................... ¥$400 ¥$430 ¥$460 ¥$490 ¥$520 ¥$2,300 

State government ............................................................. 0 0 0 0 0 0 

Total ................................................................................. ¥400 ¥430 ¥460 ¥490 ¥520 ¥2,300 

There are several caveats to the 

estimates. First, the estimates do not 

assume any impact on future drug 

pricing or new line extension 

introduction changes. It is possible 

manufacturers might reconsider future 


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drug launch strategies (including 

pricing and formulations) in light of this 

change. Second, we have not considered 

if there might be impacts on state 

supplemental rebate agreements that 

states negotiate directly with 

manufacturers. It is possible that there 

are some drugs for which states have 

some supplemental rebates that could 

be affected by the line extension rebates. 

Finally, the estimates rely on an 

analysis of a limited number of drugs; 

however, these drugs do represent a 

substantial share of Medicaid 

prescription drug spending (about 29 

percent of prescription drug spending, 

and about 37 percent of brand-name 

prescription drug spending). The impact 

on the drugs affected could be 

significant, but given the small number 

of drugs affected, the overall impact 

may be smaller as a percentage of total 

spending. Depending on the final 

number of drugs determined to be line 

extensions and the relative increase in 

the rebates for those drugs, the actual 

impact could be greater than or less than 

estimated here. 

We also note with respect to 

comments on the proposed definition of 

line extension and new formulation that 

there would be a negative impact on 

manufacturers’ incentive to continue to 

innovate, that we refined the final 

definitions to limit the scope of drugs 

that are new formulations, and thereby 

subject to the alternative rebate 

calculation relative to our proposed 

definitions. 

As previously stated, the proposed 

definitions included combination drugs 

and drugs approved with a new 

indication; however, we are not 

finalizing those changes. We believe 

that the exclusion of combination drugs 

and drugs that obtain new indications 

from the final definition of line 

extension will help ensure that we have 

maintained incentives for manufacturers 

to bring such advances to the market, 

such as new HIV drugs, or new uses for 

drugs that could be used to treat 

COVID–19. 

Finally, the amount of additional 

rebate amounts that may be due from 

manufacturers as a result of the new 

regulatory definition of line extension 

are a function of the net change in the 

number of drugs that may be considered 

a line extension, as well as the 

difference between the standard rebate 

calculated on the line extension drug 

and the alternative rebate calculation, as 

noted above. The existence of a line 

extension drug does not categorically 

result in a higher URA for a line 

extension of a drug, as there are many 

factors that enter into the URA 

calculation. As previously noted, one of 

the most important factors in the 

calculation is the inflation-based rebate 

that is applied to the initial brand name 

listed drug for the rebate quarter being 

calculated. Regardless of the price of the 

line extension drug, if the initial brand 

name listed drug did not increase in 

price in excess of the rate of inflation, 

then the alternative rebate calculation 

for the line extension should not result 

in a higher URA than the standard 

calculation for the drug that is a line 

extension. That is, if a manufacturer’s 

price increases over the years have been 

within the CPI–U, then there is reduced 

chance that they will be subject at all to 

the alternative rebate calculation. 

• VBP Arrangements and Changes to 

Best Price and Manufacturer Reporting 

requirements: As stated previously, this 

final regulation makes revisions to the 

determination of best price and AMP 

and manufacturer reporting 

requirements to address the regulatory 

challenges that manufacturers, states 

and private payers encounter when 

considering the development and 

implementation of VBP arrangements. 

The changes made by this regulation 

ensure that the regulatory framework is 

sufficient to support such arrangements 

and to promote transparency, flexibility, 

and innovation in drug pricing without 

undue administrative burden on states 

and manufacturers. They also clarify 

certain already-established policies to 

assist manufacturers and states in 

participating in VBP arrangements in a 

manner that is consistent with the law 

and maintains the integrity of the 

MDRP. 

The change being finalized in this 

rule, which provides for the reporting of 

multiple best prices pursuant to a VBP 

arrangement (which meets the 

definition of VBP arrangement, also 

being finalized in this rule), is the most 

significant from a policy perspective, 

and could result in an increased use of 

VBP among commercial payers, and 

thus Medicaid programs. The estimated 

impacts of these VBP arrangements 

under the final rule are significantly 

uncertain. Primarily, this is due to lack 

of experience with such arrangements 

and the fact that the impacts will be 

highly dependent on the interest of 

states and manufacturers to enter into 

such arrangements. 

As of 2020, there are only 9 such state 

arrangements of which we are aware, 

and we do not have data or estimates on 

the impact of these arrangements. 

Moreover, the impact will depend on 3 

factors: (1) How many states would take 

up such arrangements; (2) how many 

drugs and which drugs would be 

covered under these arrangements; and 

(3) the nature of these arrangements (for 

example, what will be the terms for 

payment and coverage of drugs under 

these arrangements). These are all 

unknowable at this time. 

In an attempt to estimate the possible 

impacts of such arrangements, we have 

estimated a range of impacts. At the 

upper bound of impacts on the federal 

government and the states, we estimate 

the impact would be 0. In these 

circumstances, it could be a 

combination of (1) no states or 

manufacturers enter into these VBP 

arrangements and (2) while states and 

manufacturers enter into VBP 

arrangements, these do not reduce net 

prescription drug spending. 

At the lower bound (on impacts on 

the federal government and the states), 

we have estimated that there could be 

some savings. We made the following 

assumptions: (1) Half of states would 

enter into VBP arrangements; (2) states 

would enter into arrangements with 50 

percent of the top 100 drugs as 

measured by price per unit; and (3) 

these arrangements would reduce net 

spending on these drugs by 50 percent. 

Based on data from the Medicaid Drug 

Rebate (MDR) database from 2020, we 

estimate that these drugs account for 

about $1.1 billion in spending and about 

$320 million in net drug spending (net 

of rebates) in 2020. Using the 

assumptions described above, this 

would reduce net drug spending by $40 

million in 2020 ($24 million federal 

share, $16 million state share). This 

would represent about a 7,000 percent 

increase in the number of such 

arrangements, and it assumes a 

significant reduction in spending on the 

drugs under these arrangements. 

Therefore, we believe it is more likely 

the actual impact would be smaller than 

the lower bound of the estimates (that 

is, it would generate fewer savings for 

the federal government and the states). 

The tables below shows the projected 

impacts by fiscal year in millions of 

dollars at the lower bound and upper 

bound. 

Lower bound 2021 2022 2023 2024 2025 2021–2025 

Federal government ......................................................... ¥$25 ¥$26 ¥$27 ¥$29 ¥$30 ¥$137 


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Lower bound 2021 2022 2023 2024 2025 2021–2025 

State government ............................................................. ¥17 ¥17 ¥18 ¥19 ¥20 ¥91 

Total ................................................................................. ¥42 ¥43 ¥45 ¥48 ¥50 ¥228 

Upper bound 2021 2022 2023 2024 2025 2021–2025 

Federal government ......................................................... $0 $0 $0 $0 $0 $0 

State government ............................................................. 0 0 0 0 0 0 

Total ................................................................................. 0 0 0 0 0 0 

We note that the policy finalized in 

this rule permitting manufacturers to 

report multiple best price points 

pursuant to a VBP arrangement, still 

requires a manufacturer to report a nonVBP best price. Thus, a key 

consideration for states would be 

determining whether the expected 

savings achieved by participation in the 

VBP arrangement (in excess of the nonVBP rebate rebate that they would 

receive) would outweigh any additional 

administrative costs that might occur as 

a result of participating in the VBP 

arrangement itself, for example, costs 

associated with tracking patients’ 

outcomes. Thus, states that decide not 

to participate in multiple best price VBP 

arrangements will continue to receive a 

Medicaid drug rebate that is based upon 

a non-VBP best price as reported by the 

manufacturer. 

Encouraging the use of VBP 

arrangements by permitting 

manufacturers to report multiple best 

price points also alleviates burdens on 

states to submit a SPA to enter into their 

own CMS-authorized SRAs in order to 

participate in VBP arrangements with 

manufacturers. That is because this 

approach allows states to take advantage 

of the approaches made available to 

commercial payers. Thus, the 

administrative burden of participating 

in VBP arrangements through the 

submission of a CMS-authorized SRA is 

no longer required unless a state wants 

to negotiate its own VBP arrangements 

with manufacturers. However, there will 

be costs to states and manufacturers of 

tracking patients, and engaging with 

health care professionals to track and 

evaluate outcomes of these VBP 

arrangements. 

With respect to the additional 

administrative costs to states of 

participating in a VBP arrangement 

resulting in the reporting of multiple 

best price points, we will use existing 

operational mechanisms to make states 

aware of such manufacturer VBP 

arrangements that have been reported to 

us. We will provide additional unit 

rebate amounts that states can earn 

under these programs through quarterly 

file transfers that we currently provide 

each quarter, which will happen 

through the Medicaid Drug Rebate 

(MDR) system that will become fully 

functional in July, 2021. 

Finally, it is possible that the 

increased use of VBP arrangements as a 

result of the new flexibilities provided 

in this regulation will encourage 

manufacturers to increase launch prices 

of new therapies to payers in an attempt 

to compensate for the additional rebates 

that they may have to give these payers 

under a VBP arrangement. This 

regulation does not control the launch 

prices of new drugs, and such is beyond 

the scope of this rulemaking, or our 

ability to assess economic impact. 

However, we expect that commercial 

payers will negotiate rebates and price 

concessions under VBP arrangements 

with manufacturers for high cost 

therapies, and that states will consider 

whether to take advantage of such 

arrangements if offered to the states by 

the manufacturers based on those 

prices. Notably, the ability of 

manufacturers to set high launch prices 

for new expensive gene and cells 

therapies are facilitated by the fact that 

these therapies are usually used to treat 

a small number of patients and often do 

not have therapeutic competitors. This 

lack of competition limits the ability of 

payers in the marketplace to manage the 

prices of drugs without therapeutic 

competitors. 

We would expect that commercial 

payers would, as they do now for drugs 

that are not provided for under a VBP 

arrangement, negotiate as aggressively 

as they could, and Medicaid programs 

would be able to take advantage of such 

negotiations. States that thought they 

could obtain better price concessions 

from a manufacturer under a VBP 

arrangement could do so by themselves 

by using a CMS-authorized SRA. 

• Assuring Pass Through of 

Manufacturer Patient Assistance: We 

heard from patient groups expressing 

concerns that, while the value of 

manufacturer cost sharing assistance 

programs is rapidly eroding due to PBM 

accumulator programs, and that patients 

were paying more out of pocket for their 

drugs, the implementation of the pass 

through assurance policy in the 

proposed rule would lead 

manufacturers to reduce or eliminate 

these programs. Commenters contended 

that our proposal could result in great 

economic harm to patients who would 

have to spend more for the drugs, or go 

without if they are unable to afford 

them. We offer the following impact 

analysis of the finalized policy we are 

adopting in this regulation. 

First, we view the required ‘‘pass 

through’’ of manufacturer’s cost sharing 

assistance to patients as a condition of 

exclusion from AMP and best price as 

a program integrity issue relating to the 

MDRP. Manufacturers have a legal 

obligation to certify each quarter that 

their AMPs and best prices are 

calculated accurately based on the 

inclusions and exclusions permitted 

based on law and regulation. This is not 

new policy, but long-standing policy. 

Moreover, rebates to states should 

reflect the discounts that manufacturers 

provide to best price eligible entities, 

whether they are provided directly or 

indirectly. 

While we do not require 

manufacturers to provide us with 

documentation regarding their AMP or 

best price calculations, they should 

maintain records regarding such 

calculations, including any reasonable 

assumptions that they use in making 

such calculations. Should they be 

audited by OIG or DOJ, manufacturers 

would likely have to provide such 

documentation, including any 

documentation regarding their treatment 

of patient assistance programs in the 

calculation of their AMP and best price. 

Under this final policy, we will not be 

requiring manufacturers to provide us 

with any additional documentation 

regarding the assurance that the patient 

assistance is passed through, but they 

should maintain such documentation in 

their records. However, we understand 

that there may be additional costs to 

manufacturers of modifying their 

patient assistance programs if necessary, 

working with their business partners, 


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143Rolling Back the Tide: Deploying a 

Consultative Approach to Tackle the Growing 

Expansion of Copay Accumulators, Xcenda, 

February 2019. 

144Pharmacy Times, Co-pay Accumulator 

Programs: Behind the Controversy, Lee Feigert 

Pharm.D, July 22, 2019. 

145Large Employers 2018 Health Plan Design 

Survey, Washington DC, National Business Group 

on Health, 2018. 

146Trends in Specialty Drug Benefits. Plano, TX: 

Pharmacy Benefits Management Institute, 2018. 

147CMS Maximizers are Displacing 

Accumulators—But CMS Ignores how Payers 

Leverage Patient Support, Drug Channels, May 19, 

2020. 

148 Impact of Copay Accumulator Adjustment 

Programs on Specialty Drug Adherence, American 

Journal of Managed Care, Vol 25 No 7, July 2019. 

149See 148. 

and keeping records of such pass 

through assurance, to ensure 

compliance with the regulations. 

Second, we also understand through 

discussions with manufacturers, patient 

groups, and from information included 

in publicly-available reports, studies, 

and documents, that PBM accumulator 

programs are growing in number and 

quickly eroding the value of the 

manufacturer assistance programs for 

patients. As a result, there is significant 

tension between manufacturers and 

payers regarding copay assistance, with 

patients caught in the middle. 

According to a February 2019 survey 

of 43 payer/health plan decision makers 

(representing over 80 million lives), 

nearly 60 percent of respondents are 

targeting limiting manufacturer 

commercial copay assistance, up from 

40 percent in 2018. That same report 

found that the drug categories targeted 

for limiting copay assistance by payers 

include rheumatoid arthritis drugs, high 

cholesterol drugs, and hepatitis drugs, 

with the HIV drug category and orphan 

drug category on the horizon.143

Another study noted that as of early 

2018, approximately 60 percent of 

covered commercial lives were under 

payers that had already implemented a 

copay accumulator program, whereas an 

additional approximately 30 percent of 

covered commercial lives were 

encompassed by plans projected to 

implement such a program in 2019 and 

beyond.144 This study also noted that 

manufacturers are concerned about 

these accumulator programs because of 

the lack of transparency regarding how 

the associated cost sharing is being used 

in practice, and manufacturers’ inability 

to determine the impact on their public 

financial statements. As a result, many 

are considering changing the design of 

their programs to prepaid debit cards 

and/or rebate refunds provided directly 

to patients. Thus, manufacturers already 

appear to be considering changes to 

these programs for various reasons. 

Additionally, another recent survey of 

large employers found that 30 percent 

implemented a copay accumulator 

program for 2019, and 21 percent were 

considering implementing them in 2020 

or 2021.145 Yet, another recent employer 

survey found that 54 percent of 

respondents did not credit third party 

copay assistance programs toward 

patient deductibles.146 Thus, based on 

these studies, it seems clear that as the 

value of these patient assistance 

programs to patients continues to erode, 

and the economic benefits to health 

plans increase, given that the health 

plans’ spending on drugs for a patient 

decreases. 

CMS has had long standing policy 

under § 447.505(b) that best price 

includes all prices, including applicable 

discounts, rebates, or other transactions 

that adjust prices either directly or 

indirectly to the best price eligible 

entity. Therefore, states and the Federal 

government may be eligible for 

additional rebates which they are now 

not earning if the value of these patient 

assistance programs is accruing to the 

health plans, which are best price 

eligible entities, and the plan’s best 

price is the one that has to be reported 

to us by the manufacturer for that drug 

for the quarter because it is the lowest 

price available. 

Accordingly, the provisions in the 

final regulation are a clarification to the 

existing exclusions to best price and 

AMP by stating that manufacturers must 

ensure their manufacturer assistance 

programs pass on the full value of 

discounts to the consumer and that the 

pharmacy, agent, or other entity (in this 

case, the commercial insurer) does not 

receive any price concession. Since this 

is a clarification to an existing 

requirement, we believe manufacturers 

will take the steps necessary (if they 

have not already done so) to ensure the 

exclusion of their manufacturer 

assistance programs will apply 

appropriately to their calculations and 

determinations of AMP and best price. 

We also believe that there are 

potential future economic and health 

care consequences to patients that will 

result if these copay accumulator 

programs are not reformed and 

restructured. That is because the benefit 

of the manufacturer cost sharing 

assistance is increasingly not accruing 

to the patient, potentially impeding 

their ability to obtain their medications. 

As a result, a patient’s out-of-pocket 

costs for medications in a health plan 

with accumulators can be thousands of 

dollars, due largely to plans with 

coinsurance and deductibles.147 This 

factor could have an impact on patients’ 

accessibility to medications, medication 

adherence, and thus long term health. 

For example, a recent study found 

that following implementation of a 

copay accumulator program, in which 

patients with autoimmune disease had 

to pay a higher percentage of drug costs, 

a significant share of these patients 

either reduced or discontinued the use 

of autoimmune specialty drugs.148 Thus, 

the PBM accumulator program, which 

can increase patient out of pocket costs 

for drugs, could potentially lead to 

higher overall health care spending in 

private plans, as well as eventually in 

Medicare and Medicaid. Recognizing 

this potential increase in spending, 

several states have also taken action to 

ban these accumulator programs in 

certain health care plans.149

Finally, we understand that some 

manufacturers may eliminate, reduce, or 

restructure their programs as a result of 

this policy, which could result in 

increased medication costs to some 

patients. However, patient assistance 

programs serve as important marketing 

tools for manufacturers to start a patient 

on a therapy, and to promote and 

maintain adherence once patients are 

taking their medications. We are 

hopeful that manufacturers will not 

eliminate these programs under this 

policy, but will work with their current 

partners to reform or restructure the 

programs as has been stated in public 

documents, or find another mechanism 

to provide the assistance. We believe 

that any changes manufacturers may 

make to their assistance programs may 

be in response to multiple factors, such 

as corporate integrity issues, including 

shareholder concerns about how this 

cost sharing is being used; continued 

patient demand for this assistance given 

the increasing costs of new drugs; and 

the need to respond to competition from 

other manufacturers. 

As we noted above in our responses 

to comments regarding this issue, we 

believe that the current prescription 

claims processing system—which 

consists of switches, manufacturer cost 

sharing assistance brokers, PBMs, and 

pharmacies, among others—can be used 

to help assure manufacturer compliance 

with the requirement that patient cost 

sharing assistance is being passed 

through to the patient. There are also 

other entities in the marketplace that 

manufacturers already work with to 

ensure compliance with Federal laws 

and regulations such as third party 

vendors and switches. These companies 

can help manufacturers comply with 

various Federal laws regulations relating 


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to patient copay assistance programs by 

reducing possible government 

sanctions, and improve compliance 

efforts in a real time manner. 

Given the existence of the electronic 

infrastructure in place that 

manufacturers are already using with 

these partners in applying and tracking 

patient assistance; the competitive 

nature of manufacturers with respect to 

marketing their drugs to patients, and 

wanting them to continue to take them; 

and the 2-year time frame before the 

effective date of this policy, we believe 

that manufacturers will both retain their 

cost sharing assistance programs, as 

well as continue to be able to meet their 

legal obligations under section 1927 of 

the Act to ensure that manufacturer 

patient assistance accrues to the patient. 

However, we recognize that there may 

be impact to patients as a result of some 

period of time when manufacturers may 

modify or restructure their patient 

assistance programs such they are able 

to track the pass through of patient 

assistance and fulfill their legal 

obligations under section 1927 of the 

Act. 

Comment: A few commenters noted 

that CMS did not analyze the impact of 

the proposed changes in the rule on 

Medicare prices and the 340B drug 

discount program. One commenter 

suggested that failure to consider these 

potential impacts could potentially 

make the proposed rule ‘‘susceptible to 

claims that the rules were arbitrary and 

capricious for failing to consider an 

important aspect of the problem.’’ 

Response: This rule makes no changes 

to either the pricing program under 

340B of the PHSA or Medicare Part B 

payment policies. Furthermore, we do 

not believe we have failed to consider 

the impacts on these programs because 

we believe 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. That is, 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. 

The bundled sale approach’s impact 

on best price will be minimal since it is 

permitting the manufacturer to allocate 

the discounts or price concessions as a 

result of a VBP arrangement across a 

bundled sale, thus spreading out the 

discounts over multiple units in the 

bundled sale. This approach to a 

bundled sale is already being adopted 

by manufacturers using reasonable 

assumptions, and we do not expect that 

codifying this practice in regulatory text 

will significantly reduce the best price 

to the point it increases the Medicaid 

drug rebate which may impact 340B 

pricing. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, small 

pharmaceutical manufacturers 

participating in the MDRP, and small 

governmental jurisdictions. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of less than $8.0 million to $41.5 

million in any 1 year. Individuals and 

states are not included in the definition 

of a small entity. We are not preparing 

an analysis for the RFA because we have 

determined, and the Secretary certifies, 

that this final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare an RIA if a rule 

may have a significant impact on the 

operations of a substantial number of 

small rural hospitals. This analysis must 

conform to the provisions of section 604 

of the RFA. For purposes of section 

1102(b) of the Act, we define a small 

rural hospital as a hospital that is 

located outside of a Metropolitan 

Statistical Area for Medicare payment 

regulations and has fewer than 100 

beds. We are not preparing an analysis 

for section 1102(b) of the Act because 

we have determined, and the Secretary 

certifies, that this final rule with 

comment period will not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation. 

In 2020, that threshold is approximately 

$156 million. This rule will have no 

consequential effect on state, local, or 

tribal governments or on the private 

sector. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it issues a proposed 

rule (and subsequent final rule) that 

imposes substantial direct compliance 

costs on state and local governments, 

preempts state law, or otherwise has 

federalism implications. Since this 

regulation does not impose any 

substantial direct compliance costs on 

state or local governments, preempt 

state law, or otherwise have federalism 

implications, the requirements of 

Executive Order 13132 are not 

applicable. 

Executive Order 13771 (January 30, 

2017) requires that the costs associated 

with significant new regulations ‘‘to the 

extent permitted by law, be offset by the 

elimination of existing costs associated 

with at least two prior regulations.’’ 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

List of Subjects 

42 CFR Part 433 

Administrative practice and 

procedure, Child support, Claims, Grant 

programs-health, Medicaid, Reporting 

and recordkeeping requirements. 

42 CFR Part 438 

Grant programs-health, Medicaid, 

Reporting and Recordkeeping 

requirements. 

42 CFR Part 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programshealth, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

42 CFR Part 456 

Administrative practice and 

procedure, Drugs, Grant programshealth, Health facilities, Medicaid, 

Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 433—STATE FISCAL 

ADMINISTRATION 

■ 1. The authority citation for part 433 

is revised to read as follows: 

Authority: 42 U.S.C. 1302. 

■ 2. Section 433.139 is amended by– 

■ a. Removing and reserving paragraph 

(b)(2); and 

■ b. Revising paragraphs (b)(3)(i) and 

(b)(3)(ii)(B). 

The revisions read as follows: 

§ 433.139 Payment of claims. 

* * * * * 

(b) * * * 

(3) * * * 

(i) The claim is for preventive 

pediatric services, including early and 

periodic screening, diagnosis and 

treatment services provided for under 

part 441, subpart B, of this chapter, that 

are covered under the State plan; or 


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(ii) * * * 

(B) For child support enforcement 

services beginning February 9, 2018, the 

provider certifies that before billing 

Medicaid, if the provider has billed a 

third party, the provider has waited 100 

days from the date of the service and 

has not received payment from the third 

party. 

* * * * * 

PART 438—MANAGED CARE 

■ 3. The authority citation for part 438 

continues to read as follows: 

Authority: 42 U.S.C. 1302. 

■ 4. Section 438.3 is amended by 

revising paragraphs (s) introductory text 

and (s)(4) and (5) to read as follows: 

§ 438.3 Standard contract requirements. 

* * * * * 

(s) Requirements for MCOs, PCCMs, 

PIHPs, or PAHPs that provide covered 

outpatient drugs. Contracts that obligate 

MCOs, PCCMs, PIHPs, or PAHPs to 

provide coverage of covered outpatient 

drugs must include the following 

requirements: 

* * * * * 

(4) The MCO, PCCM, PIHP, or PAHP 

must operate a drug utilization review 

program that complies with the 

requirements described in section 

1927(g) of the Act and part 456, subpart 

K, of this chapter, as if such requirement 

applied to the MCO, PCCM, PIHP, or 

PAHP instead of the State. 

(5) The MCO, PCCM, PIHP, or PAHP 

must provide a detailed description of 

its drug utilization review program 

activities to the State on an annual 

basis. 

* * * * * 

PART 447—PAYMENTS FOR 

SERVICES 

■ 5. The authority citation for part 447 

continues to read as follows: 

Authority: 42 U.S.C. 1302 and 1396r–8. 

■ 6. Section 447.502 is amended— 

■ a. In the definition of ‘‘Bundled sale’’ 

by adding paragraph (3); 

■ b. By adding the definition of ‘‘CMSauthorized supplemental rebate 

agreement’’ in alphabetical order; 

■ c. By revising the definitions of 

‘‘Innovator multiple source drug’’, 

‘‘Multiple source drug’’, and ‘‘Single 

source drug’’; 

■ d. By adding the definitions of 

‘‘Value-based purchasing (VBP) 

arrangement’’ in alphabetical order; and 

■ e. By revising the definition of 

‘‘Wholesaler’’. 

The additions and revisions read as 

follows: 

§ 447.502 Definitions. 

* * * * * 

Bundled sale * * * 

(3) Value-based purchasing (VBP) 

arrangements may qualify as a bundled 

sale. 

* * * * * 

CMS-authorized supplemental rebate 

agreement means an agreement that is 

approved through a state plan 

amendment (SPA) by CMS, which 

allows a state to enter into single and/ 

or multi-state supplemental drug rebate 

arrangements that generate rebates that 

are at least as large as the rebates set 

forth in the Secretary’s national rebate 

agreement with drug manufacturers. 

Revenue from these rebates must be 

paid directly to the state and be used by 

the state to offset a state’s drug 

expenditures resulting in shared savings 

with the Federal Government. 

* * * * * 

Innovator multiple source drug means 

a multiple source drug, including an 

authorized generic drug, that is 

marketed under a new drug application 

(NDA) approved by FDA, unless the 

Secretary determines that a narrow 

exception applies (as described in this 

section). It also includes a drug product 

marketed by any cross-licensed 

producers, labelers, or distributors 

operating under the NDA and a covered 

outpatient drug approved under a 

biologics license application (BLA), 

product license application (PLA), 

establishment license application (ELA) 

or antibiotic drug application (ADA). 

* * * * * 

Multiple source drug means, for a 

rebate period, a covered outpatient drug, 

including a drug product approved for 

marketing as a non-prescription drug 

that is regarded as a covered outpatient 

drug under section 1927(k)(4) of the Act, 

for which there is at least 1 other drug 

product which meets all of the 

following criteria: 

(1) Is rated as therapeutically 

equivalent (under the FDA’s most recent 

publication of ‘‘Approved Drug 

Products with Therapeutic Equivalence 

Evaluations’’ which is available at 

http://www.accessdata.fda.gov/scripts/ 

cder/ob/). 

(2) Except as provided at section 

1927(k)(7)(B) of the Act, is 

pharmaceutically equivalent and 

bioequivalent, as defined at section 

1927(k)(7)(C) of the Act and as 

determined by FDA. 

(3) Is sold or marketed in the United 

States during the period. 

* * * * * 

Single source drug means a covered 

outpatient drug, including a drug 

product approved for marketing as a 

non-prescription drug that is regarded 

as a covered outpatient drug under 

section 1927(k)(4) of the Act, which is 

produced or distributed under a new 

drug application approved by the FDA, 

including a drug product marketed by 

any cross-licensed producers or 

distributors operating under the new 

drug application unless the Secretary 

determines that a narrow exception 

applies (as described in this section), 

and includes a covered outpatient drug 

that is a biological product licensed, 

produced, or distributed under a 

biologics license application approved 

by the FDA. 

* * * * * 

Value-based purchasing (VBP) 

arrangement means an arrangement or 

agreement intended to align pricing 

and/or payments to an observed or 

expected therapeutic or clinical value in 

a select population and includes, but is 

not limited to: 

(1) Evidence-based measures, which 

substantially link the cost of a covered 

outpatient drug to existing evidence of 

effectiveness and potential value for 

specific uses of that product; and/or 

(2) Outcomes-based measures, which 

substantially link payment for the 

covered outpatient drug to that of the 

drug’s actual performance in patient or 

a population, or a reduction in other 

medical expenses. 

Wholesaler means a drug wholesaler 

that is engaged in wholesale distribution 

of prescription drugs to retail 

community pharmacies, including but 

not limited to repackers, distributors, 

own-label distributors, private-label 

distributors, jobbers, brokers, 

warehouses (including distributor’s 

warehouses, chain drug warehouses, 

and wholesale drug warehouses), 

independent wholesale drug traders, 

and retail community pharmacies that 

conduct wholesale distributions. 

■ 7. Section 447.502 is further amended, 

effective January 1, 2022, by— 

■ a. Adding the definitions of ‘‘Line 

extension’’ and ‘‘New formulation’’ in 

alphabetical order; and 

■ b. Revising the definition of ‘‘Oral 

solid dosage form’’. 

The additions and revision read as 

follows: 

§ 447.502 Definitions. 

* * * * * 

Line extension means, for a drug, a 

new formulation of the drug, but does 

not include an abuse-deterrent 

formulation of the drug (as determined 

by the Secretary). 

* * * * * 

New formulation means, for a drug, a 

change to the drug, including, but not 


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limited to: an extended release 

formulation or other change in release 

mechanism, a change in dosage form, 

strength, route of administration, or 

ingredients. 

* * * * * 

Oral solid dosage form means, an 

orally administered dosage form that is 

not a liquid or gas at the time the drug 

enters the oral cavity. 

* * * * * 

§ 447.504 [Amended] 

■ 8. Section 447.504 is amended by 

removing paragraph (b)(2) and 

redesignating paragraph (b)(3) as 

paragraph (b)(2). 

■ 9. Section 447.504 is further amended, 

effective January 1, 2023, by revising 

paragraphs (c)(25) through (29) and 

paragraphs (e)(13) through (17) to read 

as follows: 

§ 447.504 Determination of average 

manufacturer price. 

* * * * * 

(c) * * * 

(25) Manufacturer coupons to a 

consumer redeemed by the 

manufacturer, agent, pharmacy or 

another entity acting on behalf of the 

manufacturer, but only to the extent that 

the manufacturer ensures the full value 

of the coupon is passed on to the 

consumer and the pharmacy, agent, or 

other AMP-eligible entity does not 

receive any price concession. 

(26) Manufacturer-sponsored 

programs that provide free goods, 

including but not limited to vouchers 

and patient assistance programs, but 

only to the extent that the manufacturer 

ensures: the voucher or benefit of such 

a program is not contingent on any other 

purchase requirement; the full value of 

the voucher or benefit of such a program 

is passed on to the consumer; and the 

pharmacy, agent, or other AMP-eligible 

entity does not receive any price 

concession. 

(27) Manufacturer-sponsored drug 

discount card programs, but only to the 

extent that the manufacturer ensures the 

full value of the discount is passed on 

to the consumer and the pharmacy, 

agent, or the other AMP-eligible entity 

does not receive any price concession. 

(28) Manufacturer–sponsored patient 

refund/rebate programs, to the extent 

that the manufacturer ensures that the 

manufacturer provides a full or partial 

refund or rebate to the patient for outof-pocket costs and the pharmacy, agent, 

or other AMP-eligible entity does not 

receive any price concession. 

(29) Manufacturer copayment 

assistance programs, to the extent that 

the manufacturer ensures the program 

benefits are provided entirely to the 

patient and the pharmacy, agent, or 

other AMP-eligible entity does not 

receive any price concession 

* * * * * 

(e) * * * 

(13) Manufacturer coupons to a 

consumer redeemed by the 

manufacturer, agent, pharmacy or 

another entity acting on behalf of the 

manufacturer, but only to the extent that 

the manufacturer ensures the full value 

of the coupon is passed on to the 

consumer and the pharmacy, agent, or 

other AMP-eligible entity does not 

receive any price concession 

(14) Manufacturer-sponsored 

programs that provide free goods, 

including, but not limited to vouchers 

and patient assistance programs, but 

only to the extent that the manufacturer 

ensures: the voucher or benefit of such 

a program is not contingent on any other 

purchase requirement; the full value of 

the voucher or benefit of such a program 

is passed on to the consumer; and the 

pharmacy, agent, or other AMP-eligible 

entity does not receive any price 

concession. 

(15) Manufacturer-sponsored drug 

discount card programs, but only to the 

extent that the manufacturer ensures the 

full value of the discount is passed on 

to the consumer and the pharmacy, 

agent, or the other AMP-eligible entity 

does not receive any price concession. 

(16) Manufacturer-sponsored patient 

refund/rebate programs, to the extent 

that the manufacturer ensures the 

manufacturer provided a full or partial 

refund or rebate to the patient for outof-pocket costs and the pharmacy agent, 

or other AMP-eligible entity does not 

receive any price concession. 

(17) Manufacturer copayment 

assistance programs, to the extent that 

the manufacturer ensures the program 

benefits are provided entirely to the 

patient and the pharmacy agent, or other 

AMP-eligible entity does not receive any 

price concession 

* * * * * 

■ 10. Section 447.505 is amended— 

■ a. Effective January 1, 2022, in 

paragraph (a), by revising the definition 

of ‘‘Best price’’; 

■ b. Effective March 1, 2021, by revising 

paragraph (d)(3). 

The revisions read as follows: 

§ 447.505 Determination of best price. 

(a) * * * 

Best price means, for a single source 

drug or innovator multiple source drug 

of a manufacturer (including the lowest 

price available to any entity for an 

authorized generic drug), the lowest 

price available from the manufacturer 

during the rebate period to any 

wholesaler, retailer, provider, health 

maintenance organization, nonprofit 

entity, or governmental entity in the 

United States in any pricing structure 

(including capitated payments) in the 

same quarter for which the AMP is 

computed. If a manufacturer offers a 

value-based purchasing arrangement (as 

defined at § 447.502) 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 value based 

purchasing arrangement. 

* * * * * 

(d) * * * 

(3) The manufacturer must adjust the 

best price for a rebate period if 

cumulative discounts, rebates, or other 

arrangements subsequently adjust the 

prices available, to the extent that such 

cumulative discounts, rebates, or other 

arrangements are not excluded from the 

determination of best price by statute or 

regulation. 

■ 11. Section 447.505 is amended, 

effective January 1, 2023, by revising 

paragraphs (c)(8) through (12) to read as 

follows: 

§ 447.505 Determination of best price. 

* * * * * 

(c) * * * 

(8) Manufacturer-sponsored drug 

discount card programs, but only to the 

extent the manufacturer ensures that the 

full value of the discount is passed on 

to the consumer and the pharmacy, 

agent, or other entity does not receive 

any price concession. 

(9) Manufacturer coupons to a 

consumer redeemed by a consumer, 

agent, pharmacy, or another entity 

acting on behalf of the manufacturer; 

but only to the extent the manufacturer 

ensures that the full value of the coupon 

is passed on to the consumer, and the 

pharmacy, agent, or other entity does 

not receive any price concession. 

(10) Manufacturer copayment 

assistance programs, to the extent that 

the manufacturer ensures the program 

benefits are provided entirely to the 

patient and the pharmacy, agent, or 

other entity does not receive any price 

concession. 

(11) Manufacturer-sponsored patient 

refund or rebate programs, to the extent 

that the manufacturer ensures the 

manufacturer provides a full or partial 

refund or rebate to the patient for outof-pocket costs and the pharmacy, agent, 

or other entity does not receive any 

price concession. 

(12) Manufacturer-sponsored 

programs that provide free goods, 

including but not limited to vouchers 


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and patient assistance programs, but 

only to the extent that the manufacturer 

ensures the voucher or benefit of such 

a program is not contingent on any other 

purchase requirement; the full value of 

the voucher or benefit of such a program 

is passed on to the consumer; and the 

pharmacy, agent, or other entity does 

not receive any price concession. 

* * * * * 

■ 12. Section 447.506 is amended— 

■ a. In paragraph (a) by revising the 

definition of ‘‘Secondary manufacturer 

of an authorized generic drug’’; and 

■ b. By revising paragraph (b). 

The revisions read as follows: 

§ 447.506 Authorized generic drugs. 

(a) * * * 

Secondary manufacturer of an 

authorized generic drug means a 

manufacturer that is authorized by the 

primary manufacturer to sell the drug. 

(b) Exclusion of authorized generic 

drugs from AMP by a primary 

manufacturer. The primary 

manufacturer must exclude from its 

calculation of AMP any sales of 

authorized generic drugs to wholesalers 

for drugs distributed to retail 

community pharmacies when reporting 

the AMP of the brand name drug of that 

authorized generic drug. 

* * * * * 

■ 13. Section 447.509 is amended— 

■ a. Revising paragraph (a)(5); 

■ b. In paragraph (a)(6) introductory 

text, by removing word ‘‘rebate’’ and 

adding in its place the phrase ‘‘basic 

rebate’’; and 

■ c. By adding paragraphs (a)(7), (8), and 

(9). 

The revision and additions read as 

follows: 

§ 447.509 Medicaid drug rebates (MDR). 

(a) * * * 

(5) Limit on rebate. In no case will the 

total rebate amount exceed 100 percent 

of the AMP of the single source or 

multiple source innovator drug. 

* * * * * 

(7) Additional rebate for noninnovator 

multiple source drugs. In addition to the 

basic rebate described in paragraph 

(a)(6) of this section, for each dosage 

form and strength of a noninnovator 

multiple source drug, the rebate amount 

will be increased by an amount equal to 

the product of the following: 

(i) The total number of units of such 

dosage form and strength paid for under 

the State plan in the rebate period. 

(ii) The amount, if any, by which: 

(A) The AMP for the dosage form and 

strength of the drug for the period 

exceeds the base date AMP for such 

dosage form and strength, increased by 

the percentage by which the consumer 

price index for all urban consumers 

(United States city average) for the 

month before the month in which the 

rebate period begins exceeds such index 

associated with the base date AMP of 

the drug. 

(B) The base date AMP has the 

meaning of AMP set forth in sections 

1927(c)(2)(A)(ii)(II), 1927(c)(2)(B) and 

1927(c)(3)(C) of the Act. 

(8) Total rebate. The total rebate 

amount for noninnovator multiple 

source drugs is equal to the basic rebate 

amount plus the additional rebate 

amount, if any. 

(9) Limit on rebate. In no case will the 

total rebate amount exceed 100 percent 

of the AMP for the noninnovator 

multiple source drug. 

* * * * * 

■ 14. Section 447.509 is further 

amended, effective January 1, 2022, 

by— 

■ a. By revising paragraphs (a)(4)(ii) 

introductory text; 

■ b. By redesignating paragraph 

(a)(4)(iii) as paragraph (a)(4)(iv); and 

■ c. Adding a new paragraph (a)(4)(iii). 

The revision and addition read as 

follows: 

§ 447.509 Medicaid drug rebates (MDR). 

(a) * * * 

(4) * * * 

(ii) In the case of a drug that is a line 

extension of a single source drug or an 

innovator multiple source drug that is 

an oral solid dosage form, the rebate 

obligation for the rebate periods 

beginning on October 1, 2018 through 

December 31, 2021 is the amount 

computed under paragraphs (a)(1) 

through (3) of this section for such new 

drug or, if greater, the amount computed 

under paragraph (a)(1) of this section 

plus the product of all of the following: 

* * * * * 

(iii) In the case of a drug that is a line 

extension of a single source drug or an 

innovator multiple source drug, 

provided that the initial single source 

drug or innovator multiple source drug 

is an oral solid dosage form, the rebate 

obligation for the rebate periods 

beginning on and after January 1, 2022 

is the amount computed under 

paragraphs (a)(1) through (3) of this 

section for such new drug or, if greater, 

the amount computed under paragraph 

(a)(1) of this section plus the product of 

all of the following: 

(A) The AMP of the line extension of 

a single source drug or an innovator 

multiple source drug. 

(B) The highest additional rebate 

(calculated as a percentage of AMP) 

under this section for any strength of the 

original single source drug or innovator 

multiple source drug. 

(C) The total number of units of each 

dosage form and strength of the line 

extension product paid for under the 

State plan in the rebate period (as 

reported by the State). 

* * * * * 

■ 15. Section 447.510 is amended by 

adding paragraph (b)(1)(vi) to read as 

follows: 

§ 447.510 Requirement for manufacturers. 

* * * * * 

(b) * * * 

(1) * * * 

(vi) The change is a result of a VBP 

arrangement, as defined in § 447.502, 

requiring the manufacturer to make 

changes outside of the 12-quarter rule in 

this paragraph (b), when the outcome 

must be evaluated outside of the 12- 

quarter period. 

* * * * * 

■ 16. Section 447.511 is amended, 

effective January 1, 2022— 

■ a. In paragraph (a) introductory text, 

by removing the phrase ‘‘following 

data:’’ and adding in its place the phrase 

‘‘following data and any subsequent 

changes to the data fields on the CMS– 

R–144 Medicaid Drug Rebate Invoice 

form:’’; 

■ b. By revising paragraph (b); and 

■ c. By adding paragraphs (d) and (e). 

The revision and additions read as 

follows: 

§ 447.511 Requirements for States. 

* * * * * 

(b) Data submitted to CMS. On a 

quarterly basis, the State must submit 

drug utilization data to CMS, which will 

be the same information as submitted to 

the manufacturers on the CMS–R–144, 

as specified in paragraph (a) of this 

section. The state data submission will 

be due no later than 60 days after the 

end of each rebate period. In the event 

that a due date falls on a weekend or 

Federal holiday, the submission will be 

due on the first business day following 

that weekend or Federal holiday. Any 

adjustments to previously submitted 

data will be transmitted to the 

manufacturer and CMS in the same 

reporting period. 

* * * * * 

(d) State data certification. Each data 

submission in this section must be 

certified by one of the following: 

(1) The State Medicaid Director 

(SMD); 

(2) The Deputy State Medicaid 

Director (DSMD); 

(3) An individual other than the SMD 

or DSMD, who has authority equivalent 

to an SMD or DSMD; or 


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(4) An individual with the directly 

delegated authority to perform the 

certification on behalf of an individual 

described in paragraphs (d)(1) through 

(3) of this section. 

(e) State data certification language. 

Each data submission by a state must 

include the following certification 

language: ‘‘I hereby certify, to the best 

of my knowledge, that the state’s data 

submission is complete and accurate at 

the time of this submission, and was 

prepared in accordance with the state’s 

good faith, reasonable efforts based on 

existing guidance from CMS, section 

1927 of the Act and applicable Federal 

regulations. I further certify that the 

state has transmitted data to CMS, 

including any adjustments to previous 

rebate periods, in the same reporting 

period as provided to the manufacturer. 

Further, the state certifies that it has 

applied any necessary edits to the data 

for both CMS and the manufacturer to 

avoid inaccuracies at both the NDC/line 

item and file/aggregate level. Such edits 

are to be applied in the same manner 

and in the same reporting period to both 

CMS and the manufacturer.’’ 

■ 17. Section 447.518 is amended, 

effective January 1, 2022, by— 

■ a. Redesignating the text of paragraph 

(d) as paragraph (d)(1); and 

■ b. Adding paragraphs (d)(2) and (3). 

The additions read as follows: 

§ 447.518 State plan requirements, 

findings, and assurances. 

* * * * * 

(d) * * * 

(2) A State participating in VBP 

arrangements approved under a CMSauthorized supplemental rebate 

agreement (SRA) must report data 

described in paragraph (d)(3) of this 

section on an annual basis. 

(3) Within 60 days of the end of each 

year, the State must submit all of the 

following data, including cumulative 

data to date: 

(i) State. 

(ii) National drug code(s) (for drugs 

covered under the CMS-authorized VBP 

SRA). 

(iii) Product’s FDA list name. 

(iv) Number of prescriptions. 

(v) Cost to the State to administer the 

CMS-authorized VBP SRA (for example, 

systems changes, tracking outcomes, 

etc.). 

(vi) Total savings generated by the 

supplemental rebate due to the CMSauthorized VBP SRA. 

PART 456—UTILIZATION CONTROL 

■ 18. The authority citation for part 456 

is revised to read as follows: 

Authority: 42 U.S.C. 1302. 

■ 19. Section 456.703 is amended by— 

■ a. Redesignating paragraph (h) as 

paragraph (i); and 

■ b. Adding a new paragraph (h). 

The addition reads as follows: 

§ 456.703 Drug use review programs. 

* * * * * 

(h) Minimum standards for DUR 

programs—(1) Minimum standards. In 

operating their DUR programs, States 

must include the following minimum 

standards: 

(i) Prospective safety edit limitations 

for opioid prescriptions, as specified by 

the State, on: 

(A) Days’ supply for patients not 

currently receiving opioid therapy for 

initial prescription fills; 

(B) Quantity of prescription dispensed 

for initial and subsequent prescription 

fills; 

(C) Therapeutically-duplicative initial 

and subsequent opioid prescription fills; 

and 

(D) Early refills, for subsequent 

prescription fills. 

(ii) Prospective safety edit limitations 

for opioid prescriptions, as specified by 

the State, on the maximum daily 

morphine milligram equivalent for 

treatment of pain, for initial and 

subsequent prescription fills. 

(iii) A retrospective claims review 

automated process that indicates 

prescription fills of opioids in excess of 

the prospective safety edit limitations 

specified by the state under paragraph 

(h)(1)(i) or (ii) of this section to provide 

for the ongoing review of opioid claims 

data to identify patterns of fraud, abuse, 

excessive utilization, inappropriate or 

medically unnecessary care, or 

prescribing or billing practices that 

indicate abuse or provision of 

inappropriate or medically unnecessary 

care among prescribers, pharmacists and 

individuals receiving Medicaid benefits. 

(iv) A retrospective claims review 

automated process and, at the option of 

the State, prospective safety edits that 

monitor when an individual is 

concurrently prescribed opioids and: 

(A) Benzodiazepines; or 

(B) Antipsychotics. 

(v) A program to monitor and manage 

the appropriate use of antipsychotic 

medications by children enrolled under 

the State plan, including any Medicaid 

expansion groups for the Children’s 

Health Insurance Program (CHIP). 

(vi) A process to identify potential 

fraud or abuse of controlled substances 

by individuals enrolled under the State 

plan, health care providers prescribing 

drugs to individuals so enrolled, and 

pharmacies dispensing drugs to 

individuals so enrolled. 

(vii) Prospective safety edits, 

retrospective claims review automated 

processes, or a combination of these 

approaches as determined by the State, 

to identify when: 

(A) A beneficiary is prescribed an 

opioid after the beneficiary has been 

prescribed one or more drugs used for 

Medication Assisted Treatment (MAT) 

of an opioid use disorder or has been 

diagnosed with an opioid use disorder, 

within a timeframe specified by the 

State, in the absence of a new indication 

to support utilization of opioids (such as 

new cancer diagnosis or entry into 

hospice care); and 

(B) A beneficiary could be at high risk 

of opioid overdose and should be 

considered for co-prescription or codispensing of any FDA-approved opioid 

antagonist/reversal agent. 

(2) Exclusion. The requirements in 

paragraphs (h)(1)(i) through (vii) of this 

section do not apply with respect to 

individuals receiving hospice or 

palliative care or treatment for cancer; 

individuals who are residents of longterm care facilities, intermediate care 

facilities for the intellectually disabled, 

or facilities that dispense frequently 

abused drugs through a contract with a 

single pharmacy; or other individuals 

the State elects to exempt. While States 

are not required to apply the 

requirements in paragraphs (h)(1)(i) 

through (vii) with respect to these 

individuals, States may elect to do so. 

* * * * * 

■ 20. Section 456.712 is amended by 

adding paragraph (c) to read as follows: 

§ 456.712 Annual report. 

* * * * * 

(c) Public availability. All fee-forservice (FFS) and managed care DUR 

reports received by CMS under 

paragraph (b) of this section and, as 

applicable, pursuant to § 438.3(s) of this 

chapter, will be publicly posted on a 

website maintained by CMS for the 

sharing of reports and other information 

concerning Medicaid DUR programs. 

Dated: November 30, 2020. 

Seema Verma, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: December 11, 2020. 

Alex M. Azar II, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2020–28567 Filed 12–22–20; 4:15 pm] 

BILLING CODE 4120–01–P 


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