[Federal Register Volume 85, Number 251 (Thursday, December 31, 2020)]
[Rules and Regulations]
[Pages 87000-87104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28567]



[[Page 86999]]

Vol. 85

Thursday,

No. 251

December 31, 2020

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 433, 438, 447, Et al.





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; Final Rule

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

[[Page 87000]]


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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.

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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 
manufacturer-sponsored 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

[[Page 87001]]

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 cost-effectiveness 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:
    <bullet> 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.
    <bullet> 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 Sec.  447.506(c) and (d).
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    \1\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-111.pdf.
    \2\ https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-112.pdf.
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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

[[Page 87002]]

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 non-innovator 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.
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    \3\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-176.pdf.
    \4\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-099.pdf.
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    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 CMS-authorized 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 outcomes-based 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 Sec.  
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.
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    \5\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-102.pdf.
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    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

[[Page 87003]]

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 Sec.  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

[[Page 87004]]

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.
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    \6\ https://www.cdc.gov/drugoverdose/data/statedeaths.html.
    \7\ Ray 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.
    \8\ Baumblatt 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.
    \9\ Bonnie, 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[bond]Public Health Law Research, Public Health Law Research 
(PHLR), 22 June 2015, http://phlr.org/product/naloxone-community-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-facts-figures.pdf.
    \12\ https://www.samhsa.gov/data/sites/default/files/cbhsq-reports/NSDUHFFR2017/NSDUHFFR2017.pdf.
    \13\ https://www.fda.gov/consumers/consumer-updates/where-and-how-dispose-unused-medicines.
---------------------------------------------------------------------------

    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-for-service (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, Sec.  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 opioid-related 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.
---------------------------------------------------------------------------

    \14\ https://www.cdc.gov/nchs/nhis/nhis_nhsr.htm.
    \15\ Ibid.
---------------------------------------------------------------------------

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 Sec.  447.502 to 
reflect these statutory changes.

[[Page 87005]]

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=CMS-2020-0072) 
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 Sec.  447.502; Changes to Medicaid drug 
rebates (MDR) at Sec.  447.509(a)(4); Changes to the Requirements for 
States at Sec.  447.511 (SDUD and State Certification); Changes to 
State plan requirements, findings, and assurances at Sec.  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 Sec.  447.504(c) and (e) and 
determination of Best price at Sec.  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-of-
pocket 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

[[Page 87006]]

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 Sec.  433.139(b)(2). We also proposed to revise 
Sec.  433.139(b)(3)(i) by removing ``prenatal care for pregnant women, 
or'' from pay and chase services, and Sec.  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 Sec.  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 Sec.  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 Sec.  
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-policy-guidance/downloads/cib111419.pdf and https://www.medicaid.gov/medicaid/eligibility/downloads/cob-tpl-handbook.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 Sec.  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 Sec.  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 cost-effectiveness 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.

[[Page 87007]]

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 
cost-effectiveness or access to care issue.
---------------------------------------------------------------------------

    \16\ https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib111419.pdf.
---------------------------------------------------------------------------

    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

[[Page 87008]]

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' non-compliance 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 well-suited to negotiate VBP arrangements and associated measures.
    Commenters also noted that VBP arrangements:
    <bullet> Increase patient access to drug therapies, especially for 
breakthrough, gene, and other novel therapies including therapies for 
treatment of rare diseases.
    <bullet> Accelerate research and new treatment development while 
also fostering greater patient safety.
    <bullet> Support manufacturer accountability as a result of a 
shared-risk model.
    <bullet> Promote transparency in manufacturers' production 
processes, costs, and the distribution of drug therapies.
    <bullet> Improve healthcare system sustainability by decreasing 
overall treatment costs and incentivizing improved treatment 
modalities.
    <bullet> 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 Sec.  
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

[[Page 87009]]

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 CMS-authorized 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 
operationally-complex 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 Sec.  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

[[Page 87010]]

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 (Sec.  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 Sec.  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):
    <bullet> 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;
    <bullet> 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 non-medical 
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,

[[Page 87011]]

``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 ``value-based 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 CMS-authorized 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

[[Page 87012]]

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 
CMS-authorized 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 Sec.  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

[[Page 87013]]

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 outcomes-
based 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 evidence-
based 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 outcomes-based measures, including 
disease-specific 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.
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    \17\ https://www.federalregister.gov/documents/2019/10/17/2019-22027/medicare-and-state-healthcare-programs-fraud-and-abuse-revisions-to-safe-harbors-under-the.
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    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 
outcomes-based 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,

[[Page 87014]]

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 patient-centered 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 Sec.  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 outcomes-based 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 
price-eligible 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 Sec.  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 non-VBP 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

[[Page 87015]]

supplemental rebate program, that state-negotiated 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 Sec.  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 disease-specific and highly 
variable across patients.
    Some commenters recommend revising the VBP arrangement definition 
to include individual patient cost-limiting 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

[[Page 87016]]

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 non-discrimination 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 non-discrimination 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 
outcomes-based 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

[[Page 87017]]

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 
Sec.  447.505(a) in this final rule to state that if a manufacturer 
offers a value based purchasing arrangement (as defined at Sec.  
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 Sec.  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 Sec.  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 CMS-authorized 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 Sec.  447.518 that have VBP 
arrangements under CMS-approved 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 
patient-reported 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

[[Page 87018]]

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 Sec.  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 post-
marketing 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.

[[Page 87019]]

    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 
Sec.  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 Sec.  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 Sec.  447.502) for purposes of the determination of AMP in 
accordance with Sec.  447.504(f)(3) and best price in accordance with 
Sec.  447.505(d)(3).
    Comment: One commenter recommended that until a manufacturer has 
VBP arrangements in place that cover 50 percent of the treated disease-
state 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 Sec.  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 Sec.  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 Sec.  447.502, as such fees 
shall be excluded

[[Page 87020]]

from the determination of AMP and best price (see Sec. Sec.  
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 payment-over-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 Sec.  447.502. For example, while 
there may be some pay-over-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-over-time 
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 
Sec.  447.505 and provides that a drug's best price be net of certain 
transactions including incentives (see Sec.  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 Sec.  447.505(a) and does not represent a manufacturer sale 
to an AMP eligible entity consistent with Sec.  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 
two-sided risk VBP arrangements and how they would operate within the 
context

[[Page 87021]]

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 Sec.  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 Sec.  
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 population-based 
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

[[Page 87022]]

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 outcomes-
based 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 outcomes-based 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:
    <bullet> 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,
    <bullet> 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 Sec.  447.502.
    In the COD final rule, we defined bundled sale at Sec.  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 Sec.  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 outcomes-based 
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 x $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 
Sec.  447.502 to add paragraph (3) that

[[Page 87023]]

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 Sec.  
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 Sec.  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 Sec.  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 Sec.  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 Sec.  447.502.
    Response: The definition of VBP arrangement, as finalized at Sec.  
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 significantly-
higher 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 non-
VBP 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 evidence-based VBP to spread stacked 
discounts across all purchases, ultimately, in the commenter's opinion, 
reducing Medicaid rebates.
    Response: The definition of bundled sale at Sec.  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

[[Page 87024]]

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 Sec.  
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 Sec.  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 (Sec.  447.505(a)) and Reporting of Multiple 
Best Prices, Adjustments to Best Price (Sec.  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 Sec.  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

[[Page 87025]]

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 outcome-based 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 Sec.  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 Sec.  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 
Sec.  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.

[[Page 87026]]

    Also, to provide consistency between AMP and best price, as we did 
in the COD final rule (81 FR 5170), we proposed to revise Sec.  
447.505(d)(3) to make it consistent with Sec.  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 Sec.  
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 
(Sec.  447.505(a)) and Reporting of Multiple Best Prices, Adjustments 
to Best price (Sec.  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:
    <bullet> Include all payments related to VBP arrangements, 
including administrative fees, in the best price calculation.
    <bullet> 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.
    <bullet> Require manufacturers to report only one VBP best price in 
any given quarter in addition to the current best price calculations.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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 Sec.  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 Sec.  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 non-VBP 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 Sec.  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

[[Page 87027]]

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

[[Page 87028]]

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 Sec.  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 Sec.  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

[[Page 87029]]

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 CMS-authorized SRA VBP SPAs, to 
submit a SPA to CMS to obtain approval for a template to enter into 
their own CMS-authorized 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 CMS-
authorized 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 CMS-approved 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\).
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    \18\ https://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.
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    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

[[Page 87030]]

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 Sec.  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 
Sec.  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

[[Page 87031]]

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 Sec.  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 patient-specific 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 Sec.  
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 Anti-Kickback 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 
VBP-associated 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

[[Page 87032]]

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 Sec.  447.505(a) to state that if a manufacturer offers a 
value based purchasing arrangement (as defined at Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 drug-category 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).

[[Page 87033]]

    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 Sec.  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 Sec.  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

[[Page 87034]]

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 Sec.  
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 Sec.  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 Sec.  447.509(a)(4)(iii) as Sec.  
447.509(a)(4)(iv) and adding Sec.  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 Sec.  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 abuse-deterrent 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 abuse-
deterrent 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

[[Page 87035]]

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

[[Page 87036]]

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

[[Page 87037]]

supplemental rebate agreements. However, we understand that such 
reevaluation by states occurs on a regular basis, as it does with non-
Medicaid 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 non-preferred 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 inflation-
based 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.

[[Page 87038]]

    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 non-
Medicaid 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 non-substantive 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 Sec.  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 Sec.  
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.

[[Page 87039]]

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.
---------------------------------------------------------------------------

    \19\ An 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.
---------------------------------------------------------------------------

    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

[[Page 87040]]

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

[[Page 87041]]

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

[[Page 87042]]

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

[[Page 87043]]

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

[[Page 87044]]

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 
Sec.  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 Sec.  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 Sec.  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.

[[Page 87045]]

    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 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: 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 
Sec.  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:
    <bullet> 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/).
    <bullet> 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.
    <bullet> 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 non-prescription 
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 
Sec.  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

[[Page 87046]]

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 Sec.  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 Sec.  447.502. We proposed to define single source drug 
in Sec.  447.502 to mean 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, 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 Sec.  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 Sec.  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 drug-
category 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 CMS-authorized 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 
CMS-authorized SRA is not defined as it is used at Sec. Sec.  
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 
CMS-authorized 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 CMS-authorized SRA, including SRAs that reference VBP arrangements. 
We have

[[Page 87047]]

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\
---------------------------------------------------------------------------

    \20\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-176.pdf.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \21\ https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/downloads/smd091802.pdf.
---------------------------------------------------------------------------

    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 Sec. Sec.  
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 Sec. Sec.  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 CMS-authorized 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 Sec. Sec.  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

[[Page 87048]]

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 CMS-authorized 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 Sec.  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 (Sec.  447.505) and AMP (Sec.  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 Sec.  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              475        475        475        475
                                                reached.
                                                Manufacturer only
                                                pays $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.

[[Page 87049]]



                         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               0
                                                                                 copay benefit max.
                                                                                 reached.
----------------------------------------------------------------------------------------------------------------

    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 Sec.  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 Sec.  447.505(c)(8) 
through (12) which provide:
    <bullet> 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 (Sec.  447.505(c)(8)).
    <bullet> 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 (Sec.  447.505(c)(9)).
    <bullet> 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 
(Sec.  447.505(c)(10)).
    <bullet> 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 (Sec.  
447.505(c)(11)).
    <bullet> 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 (Sec.  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 manufacturer-sponsored 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 Sec.  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 
Sec.  447.505 to add a requirement that manufacturers ensure that the 
benefits of their assistance programs as provided at Sec.  
447.505(c)(8) through (12) are provided entirely to the consumer and 
proposed corresponding changes to the AMP regulations at Sec.  
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 (Sec.  
447.505) and AMP (Sec.  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 manufacturer-sponsored 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 point-of-sale cost and that manufacturers 
have

[[Page 87050]]

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 manufacturer-sponsored 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 
manufacturer-sponsored 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:
    <bullet> 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 non-formulary or non-preferred 
drug, neither of which are patient friendly scenarios.
    <bullet> 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, life-threatening 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 manufacturers-
sponsored 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 manufacturer-sponsored assistance programs to ensure the full 
value of the manufacturer-sponsored 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 manufacturer-sponsored 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

[[Page 87051]]

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 
manufacturer-sponsored 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 manufacturer-
sponsored 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

[[Page 87052]]

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 manufacturer-
sponsored 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 
Sec. Sec.  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 Sec.  447.504(c) and (e) for AMP and Sec.  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 Sec.  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 Sec.  
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

[[Page 87053]]

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 
manufacturer-sponsored 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, per-customer, 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 manufacturer-sponsored 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 point-of-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

[[Page 87054]]

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 manufacturer-sponsored 
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 
manufacturer-sponsored 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 manufacturer-sponsored 
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 non-compliance 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

[[Page 87055]]

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 manufacturer-
sponsored 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 cost-sharing 
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 of-pocket 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

[[Page 87056]]

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-of-pocket 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 
manufacturer-sponsored 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-of-pocket (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

[[Page 87057]]

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 manufacturer-sponsored 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 (Sec. Sec.  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:
    <bullet> 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).
    <bullet> 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 Sec.  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 Sec. Sec.  447.502, 447.504, and 447.506 as they 
apply to AMP and authorized generic sales as follows:
    <bullet> We proposed to revise Sec.  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

[[Page 87058]]

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.
    <bullet> 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 Sec.  447.504(b)(2). The 
nominal price sales, and associated discounts, rebates, payments or 
other financial transactions included in AMP in accordance with Sec.  
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.
    <bullet> We proposed to revise Sec.  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 Sec.  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 Sec.  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 non-affiliated.
---------------------------------------------------------------------------

    \22\ https://www.medicaid.gov/prescription-drugs/downloads/mfr-rel-112.pdf.
---------------------------------------------------------------------------

    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,

[[Page 87059]]

2019 (reported to CMS no later than 30 days after the end of the rebate 
period). Furthermore, in accordance with Sec.  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 (Sec. Sec.  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 Sec.  447.504(b)(2). The nominal price sales, and 
associated discounts, rebates, payments or other financial transactions 
included in AMP in accordance with Sec.  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

[[Page 87060]]

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 Sec.  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 Sec. Sec.  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) (Sec.  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 (non-innovator 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.

[[Page 87061]]

    We proposed to revise Sec.  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 Sec.  447.509 at:
    <bullet> 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
    <bullet> 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.
    <bullet> 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) 
(Sec.  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 Sec.  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 non-innovator 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 Sec.  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 Sec.  447.509 
as they relate to drugs that are line extensions.

G. Requirements for Manufacturers (Sec.  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 Sec.  
447.510 implement the manufacturer price reporting requirements 
including the timing of revisions to pricing data. The current 
regulation at Sec.  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

[[Page 87062]]

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-over-time 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 Sec.  
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 pay-over-
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 (Sec.  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 Sec.  
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 VBP-based 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 
Sec.  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 (Sec.  447.510(b)(1)(ii)) or due to a change in 
drug category or market date (Sec.  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 Sec.  
447.510(b)(1)(i) through (v). The same practice will apply to this new 
exception at Sec.  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

[[Page 87063]]

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 Sec.  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-over-time'' 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 pay-over-
time arrangements would not be subject to the exception at Sec.  
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 Sec.  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 (Sec.  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

[[Page 87064]]

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:
    <bullet> Actuarial and cost impact projections of legislative or 
regulatory changes to the MDRP;
    <bullet> The calculation of Medicaid's portion of the branded 
prescription drug fee specified at section 9008 of the Affordable Care 
Act); and
    <bullet> 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 Sec.  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-drug-utilization-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-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/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:
    <bullet> Paid for with only state funds;
    <bullet> Not representative of CODs (for example, eligible for FFP 
as a prescribed drug but not eligible for rebates);
    <bullet> 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
    <bullet> 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:
    <bullet> NDC's COD Status indicates a less-than-effective drug;
    <bullet> NDC has been terminated for more than 4 quarters;
    <bullet> Labeler code is terminated for the submitted quarter/year 
combination;
    <bullet> 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 Sec.  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 Sec.  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 Sec.  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 Sec.  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:

[[Page 87065]]

    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 (Sec.  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 (Sec.  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 
CMS-authorized 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 outcomes-
based 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 CMS-authorized 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 Sec.  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:
    <bullet> State.
    <bullet> National Drug Code(s) (for the drugs covered under the VBP 
arrangement).
    <bullet> Product's FDA list name
    <bullet> Number of prescriptions.
    <bullet> Cost to the state to administer VBP arrangement (for 
example, systems changes, tracking outcomes, etc.).
    <bullet> 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 (Sec.  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 
Sec.  447.518(d)(1) and (2) (in this final rule at Sec.  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

[[Page 87066]]

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 Sec.  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/federal-policy-guidance/downloads/smd091802.pdf and https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/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 Sec.  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.

[[Page 87067]]

    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 Sec.  
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 
Sec.  447.518(d)(1) and (2), we are redesignating these sections as 
Sec.  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 (Sec. Sec.  456.700 
Through 456.725), Managed Care Standard Contract Requirements and 
Requirements for MCOs, PIHPs, or PAHPs That Provide CODs (Sec.  
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,

[[Page 87068]]

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.
---------------------------------------------------------------------------

    \23\ Prada, Sergio. (2019). Comparing the Medicaid Prospective 
Drug Utilization Review Program Cost-Savings Methods Used by State 
Agencies in 2015 and 2016. American Health and Drug Benefits. 12-7-
12.
---------------------------------------------------------------------------

    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 co-dispensing 
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 under-utilization 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

[[Page 87069]]

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\
---------------------------------------------------------------------------

    \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.
    \26\ Hedegaard H, Mini[ntilde]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.
    \27\ Wilson 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \32\ Pain 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.
---------------------------------------------------------------------------

1. Minimum Standards for DUR Programs Under the SUPPORT Act and Section 
1927 of the Act
    In Sec.  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 Sec.  
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\
---------------------------------------------------------------------------

    \33\ https://www.congress.gov/115/bills/hr6/BILLS-115hr6enr.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.
---------------------------------------------------------------------------

    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 non-traumatic, 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

[[Page 87070]]

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\
---------------------------------------------------------------------------

    \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 Pain-United 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.
    \38\ Dowell, D., Haegerich, T.M., Chou, R. CDC Guideline for 
Prescribing Opioids for Chronic Pain-United 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].
    \39\ For 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.
    \40\ Additional information on non-opioid treatments for chronic 
pain are available at https://www.cdc.gov/drugoverdose/pdf/nonopioid_treatments-a.pdf.
---------------------------------------------------------------------------

    In 2019, HHS' PMTF issued its report to HHS and Congress, the Pain 
Management Best Practices Inter-Agency 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\
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    \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.
    \44\ Additional 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.
    \46\ HHS 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.
---------------------------------------------------------------------------

    Accordingly, we proposed to add Sec.  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 Sec.  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-
Na[iuml]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

[[Page 87071]]

and the need of increased monitoring and coordination of care.
---------------------------------------------------------------------------

    \49\ Section 1902(oo)(1)(A)(i)(I) of the Act, as added by 
section 1004 of the SUPPORT Act.
---------------------------------------------------------------------------

i. Limit on Days' Supply for Opioid Na[iuml]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 na[iuml]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 na[iuml]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\
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    \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.
    \52\ Shah 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.
---------------------------------------------------------------------------

    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 
immediate-release 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 
na[iuml]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\
---------------------------------------------------------------------------

    \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.
    \55\ Shah A, Hayes CJ, Martin BC. Characteristics of initial 
prescription episodes and likelihood of long-term opioid use--United 
States, 2006-2015. MMWR Morb Mortal Wkly Rep. 2017; 66(10):265-269. 
doi: 10.15585/mmwr.mm6610a1.
---------------------------------------------------------------------------

    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.).
---------------------------------------------------------------------------

    \56\ ``Days' Supply of Initial Opioid Analgesic Prescriptions 
and Additional Fills for Acute Pain Conditions Treated in the 
Primary Care Setting--United States, 2014 [verbar] MMWR.'' Centers 
for Disease Control and Prevention, Centers for Disease Control and 
Prevention, https://www.cdc.gov/mmwr/volumes/68/wr/mm6806a3.htm.
---------------------------------------------------------------------------

    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 na[iuml]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 Sec.  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

[[Page 87072]]

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.
---------------------------------------------------------------------------

    \57\ Calabrese 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \59\http://www.cdc.gov/drugoverdose/pdf/hhs_prescription_drug-abuse_report_09.2013.pdf.
    \60\ Ibid.
    \61\ ``FDA Patient Education Campaign Targets Opioid Diversion, 
Disposal.'' Available at https://patientengagementhit.com/news/fda-patient-education-campaign-targets-opioid-diversion-disposal.
    \62\ Opioid 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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/.
    \64\ Frieden 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.
---------------------------------------------------------------------------

    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 Sec.  
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.
---------------------------------------------------------------------------

    \65\ Manchikanti, 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.
---------------------------------------------------------------------------

    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 Sec.  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

[[Page 87073]]

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 Sec.  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.
---------------------------------------------------------------------------

    \68\ Section 1902(oo)(1)(A)(i)(II) of the Act, as added by 
section 1004 of the SUPPORT Act.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \69\ ``Opioids for Acute Pain.'' Centers for Disease Control and 
Prevention, available at https://www.cdc.gov/drugoverdose/pdf/patients/Opioids-for-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.
---------------------------------------------------------------------------

    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.''
---------------------------------------------------------------------------

    \71\ Ibid.
---------------------------------------------------------------------------

    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 Long-Term 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 life-threatening 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\
---------------------------------------------------------------------------

    \72\ Calculating 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_dose-a.pdf.
    \73\ Guideline for Prescribing Opioids for Chronic Pain. 
www.cdc.gov/drugoverdose/pdf/guidelines_at-a-glance-a.pdf.
    \74\ Ibid.
    \75\ https://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-identifies-harm-reported-sudden-discontinuation-opioid-pain-medicines-and-requires-label-changes.
---------------------------------------------------------------------------

    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

[[Page 87074]]

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\
---------------------------------------------------------------------------

    \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.
    \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.
    \79\ Staff, News. ``CDC Clarifies Opioid Guideline Dosage 
Thresholds.'' AAFP Home, 12 Jan. 2018, www.aafp.org/news/health-of-the-public/20180112cdcopioidclarify.html.
---------------------------------------------------------------------------

    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 Sec.  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 
na[iuml]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 Sec.  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.
---------------------------------------------------------------------------

    \80\ Section 1902(oo)(1)(A)(i)(III) of the Act, as added by 
section 1004 of the SUPPORT Act.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \81\ See section 1902(oo)(1)(A)(iii) of the Act, as added by 
section 1004 of the SUPPORT Act.
---------------------------------------------------------------------------

    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 at-risk 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 Sec.  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

[[Page 87075]]

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\
---------------------------------------------------------------------------

    \82\ Office 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/.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \84\ Forum, 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-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/SE19011.pdf.
---------------------------------------------------------------------------

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, pain-related 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.
---------------------------------------------------------------------------

    \86\ Office 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.
    \87\ Pain 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.
---------------------------------------------------------------------------

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 Sec.  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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 non-pharmacologic 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

[[Page 87076]]

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.
---------------------------------------------------------------------------

    \92\ https://www.cdc.gov/media/releases/2019/s0424-advises-misapplication-guideline-prescribing-opioids.html.
---------------------------------------------------------------------------

    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 non-
pharmacological pain management strategies for OUD and suggested CMS 
promote integrated care models to include counseling, behavioral 
therapies and physical rehabilitation. Other commenters suggested 
additional non-pharmacological pain management strategies to include 
osteopathic principles, including physical therapy, acupuncture, 
chiropractic care, over-the-counter medications and occupational 
therapy to improve self-management 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 non-
pharmacologic 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 Non-Pharmacologic 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 non-opioid pharmacologic and non-
pharmacologic pain management therapies, highlight some preliminary 
strategies used by several states, and include other useful resources 
to help states.
---------------------------------------------------------------------------

    \93\ https://www.cms.gov/About-CMS/Agency-Information/Emergency/Downloads/Opioid-epidemic-roadmap.pdf.
    \94\ https://www.cms.gov/Outreach-and-Education/Outreach/Partnerships/Downloads/CMS-Opioid-Misuse-Strategy-2016.pdf.
    \95\ https://www.medicaid.gov/sites/default/files/federal-policy-guidance/downloads/cib022219.pdf.
    \96\ https://www.medicaid.gov/sites/default/files/Federal-Policy-Guidance/Downloads/cib-02-02-16.pdf.
---------------------------------------------------------------------------

    Comment: Several commenters expressed concern that the proposed 
rule would give too much autonomy to the states for determining days' 
supply for opioid na[iuml]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 
state-established 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

[[Page 87077]]

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 state-specific 
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 opioid-related DUR parameters 
under Sec.  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 Sec.  
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

[[Page 87078]]

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.
---------------------------------------------------------------------------

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

    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 opioid-related 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 provider-patient 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.
---------------------------------------------------------------------------

    \98\ https://www.hhs.gov/sites/default/files/ppacacon.pdf.
---------------------------------------------------------------------------

    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 Sec.  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 
opioid-related 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 Sec.  456.703(h)(1)(i) that states must 
establish state-identified 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 state-
specified timeframe are referred to as opioid na[iuml]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 na[iuml]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

[[Page 87079]]

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 Sec.  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 Sec.  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 Sec.  
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

[[Page 87080]]

Long-Term Opioid Analgesics \100\ when designing or implementing these 
standards to avoid abrupt opioid withdrawal.
---------------------------------------------------------------------------

    \99\ 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.
    \100\ https://www.hhs.gov/opioids/sites/default/files/2019-10/Dosage_Reduction_Discontinuation.pdf.
---------------------------------------------------------------------------

    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 state-
specific look-back periods in a comprehensive DUR program.\102\
---------------------------------------------------------------------------

    \101\ https://www.kmap-state-ks.us/Documents/Content/Bulletins/18101%20-%20General%20-%20Opioid_2.1.pdf.
    \102\ https://www.wsha.org/quality-safety/projects/opioid-pain-management/opioid-prescribing-reports/.
---------------------------------------------------------------------------

    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 Sec.  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.
---------------------------------------------------------------------------

    \103\ https://www.drugabuse.gov/publications/drugfacts/prescription-opioids.
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    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 Sec.  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 Sec.  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 Sec.  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.

[[Page 87081]]

    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 Sec.  
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.
---------------------------------------------------------------------------

    \104\ https://www.cms.gov/About-CMS/Story-Page/CDCs-Tapering-Guidance.pdf.
---------------------------------------------------------------------------

    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 Sec.  
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 state-administered 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

[[Page 87082]]

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 Sec.  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\
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    \105\ https://qpp.cms.gov/docs/QPP_quality_measure_specifications/CQM-Measures/2019_Measure_131_MIPSCQM.pdf.
    \106\ https://www.jointcommission.org/resources/patient-safety-topics/pain-management-standards-for-accredited-organizations/#a98ee961a3184ec899b62579053a24a7.
---------------------------------------------------------------------------

    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 decision-making, 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 state-specific 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 Sec.  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 Sec.  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

[[Page 87083]]

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.
---------------------------------------------------------------------------

    \107\ Section 1902(oo)(1)(B) of the Act, as added by section 
1004 of the SUPPORT 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 long-term safety and efficacy for off-label utilization is a 
particular concern in children.\110\
---------------------------------------------------------------------------

    \108\ Crystal, 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.
---------------------------------------------------------------------------

    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 off-label treatment remains to be 
determined.<SUP>112 113</SUP>
---------------------------------------------------------------------------

    \111\ Marder SR, et al. Physical health monitoring of patients 
with schizophrenia. Am J Psychiatry. 2004; 161(8):1334.
    \112\ https://jamanetwork.com/journals/jamapsychiatry/article-abstract/2717966.
    \113\ https://www.healthline.com/health/consumer-reports-antipsychotics-children#1.
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    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 Sec.  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\
---------------------------------------------------------------------------

    \114\ https://children.wi.gov/Documents/Psychotropic%20Medication%20Prescribing%20for%20Children%20on%20Medicaid.pdf.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \115\ https://www.ahrq.gov/sites/default/files/wysiwyg/policymakers/chipra/factsheets/chipra_1415-p011-1-ef_0.pdf.
    \116\ https://store.samhsa.gov/sites/default/files/d7/priv/pep19-antipsychotic-bp_508.pdf.
---------------------------------------------------------------------------

    After considering the comments received, we are finalizing, as 
proposed, Sec.  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 
Sec.  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,

[[Page 87084]]

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 
Sec. Sec.  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\
---------------------------------------------------------------------------

    \117\ ``Pharmacy Lock-In Programs Slated For Expanded Use.'' 
OPEN MINDS, www.openminds.com/market-intelligence/executive-briefings/pharmacy-lock-programs-slated-expanded-use/.
    \118\ Office 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-slated-expanded-use/.
---------------------------------------------------------------------------

    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.<SUP>121 122</SUP> 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.
---------------------------------------------------------------------------

    \120\ ``Prescription Drug Monitoring Frequently Asked Questions 
(FAQ): The PDMP Training and Technical Assistance Center.'' 
Prescription Drug Monitoring Frequently Asked Questions (FAQ) [bond] 
The PDMP Training and Technical Assistance Center, 
www.pdmpassist.org/content/prescription-drug-monitoring-frequently-asked-questions-faq.
    \121\ Beaton, Thomas. ``Preventing Provider Fraud through Health 
IT, Data Analytics.'' HealthPayerIntelligence, 5 Oct. 2018, https://healthpayerintelligence.com/news/preventing-provider-fraud-through-health-it-data-analytics.
    \122\ OIG, 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.
---------------------------------------------------------------------------

    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 non-integrated 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

[[Page 87085]]

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 Sec.  
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 Sec.  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.
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    \123\ Support 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.
---------------------------------------------------------------------------

    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

[[Page 87086]]

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 non-pharmacy 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 Sec.  
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 medically-accepted 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

[[Page 87087]]

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 
Sec.  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\
---------------------------------------------------------------------------

    \125\ https://www.nasmhpd.org/content/tac-assessment-working-paper-2016-compilation-state-behavioral-health-patient-treatment.
    \126\ https://www.hhs.gov/about/news/2020/07/13/fact-sheet-samhsa-42-cfr-part-2-revised-rule.html.
---------------------------------------------------------------------------

    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, 
Medication-Assisted Treatment For Opioid Addiction in Opioid Treatment 
Programs.\127\
---------------------------------------------------------------------------

    \127\ https://store.samhsa.gov/product/TIP-63-Medications-for-Opioid-Use-Disorder-Full-Document/PEP20-02-01-006.
---------------------------------------------------------------------------

    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 opioid-sparing 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

[[Page 87088]]

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 
decision-making 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\
---------------------------------------------------------------------------

    \128\ https://health.ri.gov/publications/guidelines/provider/PatientViolatesPainAgreement.pdf.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \129\ Office 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.
    \130\ SUPPORT for Patients and Communities Act section 1006(b), 
Public Law 115-271 (2018), https://www.congress.gov/115/plaws/publ271/PLAW-115publ271.pdf.
---------------------------------------------------------------------------

    In consideration of comments received, we are finalizing Sec.  
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 
co-dispensing 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 FDA-approved 
opioid antagonist/reversal agent, but it is possible that FDA could 
approve others in the future.
---------------------------------------------------------------------------

    \131\ ``Understanding Naloxone.'' Harm Reduction Coalition. 
Available at https://harmreduction.org/issues/overdose-prevention/overview/overdose-basics/understanding-naloxone/.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \132\ NEJM Journal Watch: Summaries of and Commentary on 
Original Medical and Scientific Articles from Key Medical Journals, 
HHS-recommends-coprescribing-naloxone-with-opioids-high. https://www.jwatch.org/fw114907/2018/12/20/hhs-recommends-coprescribing-naloxone-with-opioids-high.
---------------------------------------------------------------------------

    When implementing this safety edit or review, we noted that states 
should

[[Page 87089]]

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 Sec.  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 co-
dispensing 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 co-dispensing 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 FDA-approved 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.
---------------------------------------------------------------------------

    \135\ https://store.samhsa.gov/sites/default/files/d7/priv/sma18-4742.pdf.
---------------------------------------------------------------------------

    Comment: Some commenters expressed the belief that pharmacists 
should be allowed to dispense any FDA-approved 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. Forty-seven 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\
---------------------------------------------------------------------------

    \136\ https://www.medicaid.gov/medicaid/prescription-drugs/drug-utilization-review/drug-utilization-review-annual-report/index.html.
    \137\ Ibid.
---------------------------------------------------------------------------

    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.

[[Page 87090]]

    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\
---------------------------------------------------------------------------

    \138\ https://store.samhsa.gov/sites/default/files/d7/priv/sma18-4742.pdf.
---------------------------------------------------------------------------

    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, Sec.  
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 co-dispensing of naloxone. 
Based on comments received, we are revising the final regulation text 
in Sec.  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 Sec.  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 Sec.  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 Sec.  
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\
---------------------------------------------------------------------------

    \139\ Section 1902(oo)(3) of the Act, as added by section 1004 
of the SUPPORT Act.
---------------------------------------------------------------------------

    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 clinically-indicated 
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 Sec.  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 opioid-related 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

[[Page 87091]]

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 Sec.  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 Sec.  
456.703(h)(2) as proposed, specifying that the requirements in Sec.  
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 Sec.  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 Sec.  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 
Sec.  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 Sec.  438.2 and 
we are finalizing amendments to Sec.  438.3(s) introductory text and 
(s)(4) and (s)(5) replacing all proposed references to MCE to ``PCCM'' 
in the final version of Sec.  438.2(s) to implement our proposal that 
PCCMs be added to the list of managed care plans that must comply with 
Sec.  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

[[Page 87092]]

expect to provide related guidance in connection with any final rule.
---------------------------------------------------------------------------

    \140\ https://www.medicaid.gov/federal-policy-guidance/downloads/cib080519-1004.pdf.
---------------------------------------------------------------------------

    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 co-dispensing 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 Sec.  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 Sec.  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 Sec.  
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, Sec.  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 Sec.  456.712 to provide that 
all FFS and managed care DUR reports received by CMS under Sec.  
456.712(b) and, as applicable, under Sec.  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\
---------------------------------------------------------------------------

    \141\ https://www.medicaid.gov/medicaid/prescription-drugs/drug-utilization-review/drug-utilization-review-annual-report/index.html.
---------------------------------------------------------------------------

    In consideration of comments received, CMS is finalizing Sec.  
456.712(c) as proposed, to provide that all FFS and managed care DUR 
reports received by CMS under Sec.  456.712(b) and, as applicable, 
pursuant to Sec.  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:
    <bullet> The need for the collection of information and its 
usefulness in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the

[[Page 87093]]

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
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                    Occupation      Mean hourly    benefits and      Adjusted
                Occupation title                       code         wage ($/hr)    overhead ($/   hourly wage ($/
                                                                                        hr)             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
----------------------------------------------------------------------------------------------------------------
                                                                    CMS-2482-P:     CMS-2482-F:
                Occupation title                    Occupation     May 2018 ($/    May 2019 ($/   Difference ($/
                                                       code             hr)             hr)             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 
(Sec.  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 Sec.  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 CMS-authorized 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 x 1/year x 
51 respondents) at a cost of $36,200.60 (306 hr x $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,

[[Page 87094]]

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 CMS-authorized 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 (Sec.  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 Sec.  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 Sec.  447.511(d) states will be required to certify that 
their SDUD meets the requirements specified under Sec.  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 x 56 respondents) at a cost of $52,192 (280 hr x 
$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 x 56 respondents) at a cost of $20,877 (112 hr x $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 (Sec.  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 x 4 responses/year x 56 respondents) at a cost of $8,550 (224 
hr x $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.

[[Page 87095]]



                                                                        Table 5--Summary of Annual Requirement and Burden
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total
 Section under title 42 of the CFR     Number of    responses (per      Time per response       Total time       Labor rate ($/hr)     Total cost ($)       OMB control number (CMS ID No.)
                                      respondents        year)               (hours)              (hours)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   447.518(d)(1) and (2)......              51              51  6.......................             306  118.30.................          36,200  0938-1385 (CMS-10722)
Sec.   447.511....................              56              56  5.......................             280  186.40.................          52,192  0938-0582 (CMS-R-144)
Sec.   447.518(d) (1) and (2).....              51              51  6.......................             306  18.3...................          36,200  0938-1385 (CMS-10722)
                                                                                                              0......................
Sec.   447.511....................              56             224  0.5.....................             112  186.40.................          20,877  0938-0582 (CMS-R-144)
Sec.   433.139(b)(2), (b)(3)(i),                56             224  1.......................             224  35.04..................           7,849  0938-1265 (CMS-10529)
 and (b)(3)(ii)(B).
                                   -------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total.........................              56             555  Varies..................             922  Varies.................         117,118  n/a
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

IV. Regulatory Impact Statement

A. Statement of Need

    This final rule will implement:
    <bullet> Changes to section 1927 of the Act;
    <bullet> 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;
    <bullet> Section 602 of BBA 2015, which amended section 1927(c)(3) 
of the Act;
    <bullet> Section 2501(d) of the Affordable Care Act, which added 
section 1927(c)(2)(C) of the Act;
    <bullet> 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;
    <bullet> Changes and additions to sections 1902 and 1927(g)(1) of 
the Act as set forth by section 1004 of the SUPPORT Act;
    <bullet> 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 ((Sec.  433.139(b)(2), (b)(3)(i), and 
(b)(3)(ii)(B)); and
    <bullet> 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 VBP-related 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.
    <bullet> 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 co-dispensing of any FDA-approved opioid antagonist/
reversal agent, have already been adopted by state Medicaid programs as 
reflected in our most recent

[[Page 87096]]

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.
---------------------------------------------------------------------------

    \142\ https://www.medicaid.gov/medicaid/prescription-drugs/downloads/2019-dur-ffs-summary-report.pdf.
---------------------------------------------------------------------------

    <bullet<ls-thn-eq> 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.

----------------------------------------------------------------------------------------------------------------
                                                                            Change in
                                                                           rebates due   Percentage   Percentage
                                       Total        Total         Net        to line     change in    change  in
                                      spending     rebates      spending    extension     rebates        net
                                                                            definition                 spending
----------------------------------------------------------------------------------------------------------------
Top 100 drugs.....................      $25,265      $18,894       $6,371         $209          1.1         -3.3
Top 100 drugs identified as line          4,295        3,212        1,083          209          6.5        -19.3
 extensions.......................
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

[[Page 87097]]

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.
    <bullet> 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

[[Page 87098]]

 
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 non-VBP 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 non-VBP 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.
    <bullet> 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,

[[Page 87099]]

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\
---------------------------------------------------------------------------

    \143\ Rolling Back the Tide: Deploying a Consultative Approach 
to Tackle the Growing Expansion of Copay Accumulators, Xcenda, 
February 2019.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \144\ Pharmacy Times, Co-pay Accumulator Programs: Behind the 
Controversy, Lee Feigert Pharm.D, July 22, 2019.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \145\ Large Employers 2018 Health Plan Design Survey, Washington 
DC, National Business Group on Health, 2018.
    \146\ Trends in Specialty Drug Benefits. Plano, TX: Pharmacy 
Benefits Management Institute, 2018.
---------------------------------------------------------------------------

    CMS has had long standing policy under Sec.  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.
---------------------------------------------------------------------------

    \147\ CMS Maximizers are Displacing Accumulators--But CMS 
Ignores how Payers Leverage Patient Support, Drug Channels, May 19, 
2020.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \148\ Impact of Copay Accumulator Adjustment Programs on 
Specialty Drug Adherence, American Journal of Managed Care, Vol 25 
No 7, July 2019.
    \149\ See 148.
---------------------------------------------------------------------------

    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

[[Page 87100]]

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 
programs-health, Health facilities, Health professions, Medicaid, 
Reporting and recordkeeping requirements, Rural areas.

42 CFR Part 456

    Administrative practice and procedure, Drugs, Grant programs-
health, 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

0
1. The authority citation for part 433 is revised to read as follows:

    Authority:  42 U.S.C. 1302.


0
2. Section 433.139 is amended by-
0
a. Removing and reserving paragraph (b)(2); and
0
b. Revising paragraphs (b)(3)(i) and (b)(3)(ii)(B).
    The revisions read as follows:


Sec.  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

[[Page 87101]]

    (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

0
3. The authority citation for part 438 continues to read as follows:

    Authority:  42 U.S.C. 1302.


0
4. Section 438.3 is amended by revising paragraphs (s) introductory 
text and (s)(4) and (5) to read as follows:


Sec.  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

0
5. The authority citation for part 447 continues to read as follows:

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


0
6. Section 447.502 is amended--
0
a. In the definition of ``Bundled sale'' by adding paragraph (3);
0
b. By adding the definition of ``CMS-authorized supplemental rebate 
agreement'' in alphabetical order;
0
c. By revising the definitions of ``Innovator multiple source drug'', 
``Multiple source drug'', and ``Single source drug'';
0
d. By adding the definitions of ``Value-based purchasing (VBP) 
arrangement'' in alphabetical order; and
0
e. By revising the definition of ``Wholesaler''.
    The additions and revisions read as follows:


Sec.  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.

0
7. Section 447.502 is further amended, effective January 1, 2022, by--
0
a. Adding the definitions of ``Line extension'' and ``New formulation'' 
in alphabetical order; and
0
b. Revising the definition of ``Oral solid dosage form''.
    The additions and revision read as follows:


Sec.  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

[[Page 87102]]

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.
* * * * *


Sec.  447.504   [Amended]

0
8. Section 447.504 is amended by removing paragraph (b)(2) and 
redesignating paragraph (b)(3) as paragraph (b)(2).

0
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:


Sec.  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 out-of-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 out-of-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
* * * * *

0
10. Section 447.505 is amended--
0
a. Effective January 1, 2022, in paragraph (a), by revising the 
definition of ``Best price'';
0
b. Effective March 1, 2021, by revising paragraph (d)(3).
    The revisions read as follows:


Sec.  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 Sec.  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.

0
11. Section 447.505 is amended, effective January 1, 2023, by revising 
paragraphs (c)(8) through (12) to read as follows:


Sec.  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 out-of-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

[[Page 87103]]

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.
* * * * *

0
12. Section 447.506 is amended--
0
a. In paragraph (a) by revising the definition of ``Secondary 
manufacturer of an authorized generic drug''; and
0
b. By revising paragraph (b).
    The revisions read as follows:


Sec.  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.
* * * * *

0
13. Section 447.509 is amended--
0
a. Revising paragraph (a)(5);
0
b. In paragraph (a)(6) introductory text, by removing word ``rebate'' 
and adding in its place the phrase ``basic rebate''; and
0
c. By adding paragraphs (a)(7), (8), and (9).
    The revision and additions read as follows:


Sec.  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.
* * * * *

0
14. Section 447.509 is further amended, effective January 1, 2022, by--
0
a. By revising paragraphs (a)(4)(ii) introductory text;
0
b. By redesignating paragraph (a)(4)(iii) as paragraph (a)(4)(iv); and
0
c. Adding a new paragraph (a)(4)(iii).
    The revision and addition read as follows:


Sec.  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).
* * * * *

0
15. Section 447.510 is amended by adding paragraph (b)(1)(vi) to read 
as follows:


Sec.  447.510   Requirement for manufacturers.

* * * * *
    (b) * * *
    (1) * * *
    (vi) The change is a result of a VBP arrangement, as defined in 
Sec.  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.
* * * * *

0
16. Section 447.511 is amended, effective January 1, 2022--
0
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:'';
0
b. By revising paragraph (b); and
0
c. By adding paragraphs (d) and (e).
    The revision and additions read as follows:


Sec.  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

[[Page 87104]]

    (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.''

0
17. Section 447.518 is amended, effective January 1, 2022, by--
0
a. Redesignating the text of paragraph (d) as paragraph (d)(1); and
0
b. Adding paragraphs (d)(2) and (3).
    The additions read as follows:


Sec.  447.518   State plan requirements, findings, and assurances.

* * * * *
    (d) * * *
    (2) A State participating in VBP arrangements approved under a CMS-
authorized 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 
CMS-authorized VBP SRA.

PART 456--UTILIZATION CONTROL

0
18. The authority citation for part 456 is revised to read as follows:

    Authority:  42 U.S.C. 1302.


0
19. Section 456.703 is amended by--
0
a. Redesignating paragraph (h) as paragraph (i); and
0
b. Adding a new paragraph (h).
    The addition reads as follows:


Sec.  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 co-dispensing 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 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 the requirements in 
paragraphs (h)(1)(i) through (vii) with respect to these individuals, 
States may elect to do so.
* * * * *

0
20. Section 456.712 is amended by adding paragraph (c) to read as 
follows:


Sec.  456.712   Annual report.

* * * * *
    (c) Public availability. All fee-for-service (FFS) and managed care 
DUR reports received by CMS under paragraph (b) of this section and, as 
applicable, pursuant to Sec.  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