79020 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 433, 438, and 447 

[CMS–2434–F] 

RIN 0938–AU28 

Medicaid Program; Misclassification of 

Drugs, Program Administration and 

Program Integrity Updates Under the 

Medicaid Drug Rebate Program 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), Department 

of Health and Human Services (HHS). 

ACTION: Final rule. 

SUMMARY: This final rule implements 

policies in the Medicaid Drug Rebate 

Program (MDRP) related to the new 

legislative requirements in the Medicaid 

Services Investment and Accountability 

Act of 2019 (MSIAA), which address 

drug misclassification, as well as drug 

pricing and product data misreporting 

by manufacturers. Additionally, we are 

finalizing several other proposed 

program integrity and program 

administration provisions or 

modifications in this final rule, 

including revising and finalizing key 

definitions used in the MDRP. This rule 

also finalizes a provision not directly 

related to MDRP that makes revisions to 

the third-party liability regulation due 

to amendments made by the Bipartisan 

Budget Act (BBA) of 2018. We also are 

finalizing our proposal to rescind 

revisions made by the December 31, 

2020 final rule ‘‘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’’ (‘‘the 2020 final rule’’) to 

the Determination of Best Price and 

Determination of Average Manufacturer 

Price (AMP) sections. 

DATES: These regulations are effective 

on November 19, 2024. 

Applicability Dates: In the 

SUPPLEMENTARY INFORMATION section of 

this final rule, we provide a table (Table 

1), which lists key changes in this final 

rule that have an applicability date 

other than the effective date of this final 

rule. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Omar Alemi, 720–853–2724, 

omar.alemi@cms.hhs.gov, for issues 

related to the definition of covered 

outpatient drug (COD) and removal of 

manufacturer rebate cap. 

Ruth Blatt, 410–786–1767, ruth.blatt@

cms.hhs.gov, for issues related to the 

definitions of noninnovator multiplesource drug, market date, and COD. 

Ginger Boscas, 410–786–3098, 

ginger.boscas@cms.hhs.gov, for issues 

related to third-party liability. 

Michael Forman, 410–786–2666, 

michael.forman@cms.hhs.gov, for issues 

related to physician-administered drugs. 

Charlotte Hammond, 410–786–1092, 

charlotte.hammond@cms.hhs.gov, for 

issues related to diagnosis on 

prescriptions and professional 

dispensing fees. 

Mickey Morgan, 443–745–3950, 

mickey.morgan1@cms.hhs.gov, for 

issues related to drug cost transparency 

in Medicaid managed care contracts and 

accounting for accumulated price 

concessions from ’stacking’ when 

determining best price. 

Lisa Shochet, 410–786–5445, 

lisa.shochet@cms.hhs.gov, for issues 

related to Bank Identification Number 

and Processor Control Number (BIN/ 

PCN). 

Terry Simananda, 410–786–8144, 

terry.simananda@cms.hhs.gov, for 

issues related to internal investigation, 

Collection of Information, and 

Regulatory Impact Analysis sections. 

Whitney Swears, 410–786–6543, 

whitney.swears@cms.hhs.gov, for issues 

related to time limitation on audits and 

the definition of manufacturer. 

Cathy Traugott, 720–853–2785, 

catherine.traugott@cms.hhs.gov, for 

issues related to drug misclassifications, 

definition of vaccine, and a drug price 

verification process through data 

collection survey. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Introduction 

Under the Medicaid program, section 

1902(a)(54) of the Social Security Act 

(the Act) provides States with the option 

of providing coverage of prescribed 

drugs as described in section 

1905(a)(12) of the Act, and to date, all 

States have elected to do so. Section 

1903(a) of the Act provides for Federal 

Financial Participation (FFP) in State 

expenditures for these covered 

outpatient drugs (CODs). Coverage of 

CODs under the option provided by 

section 1902(a)(54) of the Act must 

comply with the requirements of section 

1927 of the Act. Section 1927 of the Act 

governs the Medicaid Drug Rebate 

Program (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 conditioning FFP in medical 

assistance for drugs covered under 

section 1902(a)(54) on the manufacturer 

of the drug having an NDRA. The 

rebates paid by manufacturers to States 

help to partially offset the Federal and 

State costs of most outpatient 

prescription drugs dispensed to 

Medicaid beneficiaries. 

The amount of the rebate is 

determined by a formula set forth in 

section 1927(c) of the Act. Generally, 

the formula to calculate the rebate that 

applies to a particular drug depends on 

whether the drug is classified as (1) a 

single source drug (S drug) or innovator 

multiple source drug (I drug), 

commonly referred to as a brand-name 

drug, or (2) other drugs, which include 

noninnovator multiple source drugs (N 

drug), commonly referred to as generic 

drugs, among others. Generally, 

pursuant to section 1927 of the Act, 

drugs classified as single source drugs 

or innovator multiple source drugs pay 

higher rebates than those that are 

classified as an ‘‘other drug,’’ such as 

noninnovator multiple source drugs. 

Consistent with section 1927(b)(3)(A) 

of the Act, a manufacturer must report 

and certify certain drug product and 

drug pricing information for CODs to 

CMS not later than 30 days after the last 

day of each month and certain drug 

product and drug pricing information 30 

days after the last day of each quarter of 

a rebate period. If a manufacturer fails 

to submit timely information, or 

misreports information, we may be 

unable to establish accurate Unit Rebate 

Amounts (URAs) due to the 

misreporting or late reporting. While we 

provide URAs to the States each quarter 

to help facilitate billing manufacturers 

for rebates, it is ultimately the 

manufacturer’s responsibility to ensure 

accurate rebates are paid to States for 

their CODs. 

Prior to the enactment of the 

Medicaid Services Investment and 

Accountability Act of 2019 (MSIAA) 

(Pub. L. 116–16; enacted April 18, 

2019), section 1927(k)(7)(A)(iv) of the 

Act defined a single source drug as a 

covered outpatient drug which is 

produced or distributed under an 

original new drug application (NDA). 

Section 1927(k)(7)(A)(ii) of the Act 

similarly defined an innovator multiple 

source drug as a multiple source drug 

that was originally marketed under an 

original NDA. A noninnovator multiple 

source drug was defined at section 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79021 

1https://www.govinfo.gov/content/pkg/FR-2016- 

02-01/pdf/2016-01274.pdf. 

2https://www.medicaid.gov/medicaid-chipprogram-information/by-topics/prescription-drugs/ 

downloads/rx-releases/mfr-releases/mfr-rel-098.pdf. 

1927(k)(7)(A)(iii) of the Act as a 

multiple source drug that is not an 

innovator multiple source drug. MSIAA 

made several revisions to these 

definitions, including adding a 

provision to ratify CMS’ existing policy 

to permit certain exceptions from the 

definitions if a narrow exception 

applies, as described in § 447.502 or any 

successor regulation. 

This narrow exception process in 

§ 447.502 was created in the 2016 final 

rule entitled ‘‘Medicaid Program; 

Covered Outpatient Drugs’’ 1 (2016 COD 

final rule), under which drug 

manufacturers could submit a request 

for a narrow exception to allow 

individual drugs approved under an 

NDA to be treated as if they were 

approved under an abbreviated new 

drug application (ANDA) and classified 

as noninnovator multiple source drugs 

prospectively from the effective date of 

the 2016 COD final rule. Instructions to 

manufacturers regarding this process 

were included in Manufacturer Release 

#98, May 2, 2016.2 The 2016 COD final 

rule did not, however, excuse 

manufacturers from their obligation to 

correctly report drugs approved under 

an NDA, as either single source or 

innovator multiple source drugs prior to 

the effective date of the 2016 COD final 

rule, which was April 1, 2016. This 

narrow exception process was codified 

into statute in MSIAA when the 

Congress removed the word ‘‘original’’ 

from the definitions of single source 

drug and innovator multiple source 

drug, thereby confirming CMS’ pre 2016 

interpretation. 

We published the proposed rule (88 

FR 34238–34296) on May 26, 2023, and 

provided a 60-day comment period. A 

total of 128 comments were received. 

We are now publishing the final rule. 

We are clarifying and emphasizing our 

intent that if any provision of this final 

rule is held to be invalid or 

unenforceable by its terms, or as applied 

to any person or circumstance, or stayed 

pending further action, it shall be 

severable from other parts of this final 

rule, and from rules and regulations 

currently in effect, and not affect the 

remainder thereof or the application of 

the provision to other persons not 

similarly situated or to other, dissimilar 

circumstances. Through this rule, we 

adopt provisions that are intended to 

and will operate independently of each 

other, even if each serves the same 

general purpose or policy goal. Where a 

provision is necessarily dependent on 

another, the context generally makes 

that clear. 

B. Amendments Made by the Medicaid 

Services Investment and Accountability 

Act of 2019 (MSIAA) to Section 1927 of 

the Act Regarding MDRP Drug 

Classification Enforcement and 

Penalties 

Section 6 of MSIAA, titled 

‘‘Preventing the Misclassification of 

Drugs Under the Medicaid Drug Rebate 

Program,’’ amended sections 1903 and 

1927 of the Act to (1) specify the 

definitions for single source drug, 

innovator multiple source drug, and 

noninnovator multiple source drug, and 

(2) to provide the Secretary with 

additional compliance, oversight and 

enforcement authorities to ensure 

compliance with program requirements 

with respect to manufacturers’ reporting 

of drug product and pricing 

information, which includes the 

appropriate classification of a drug. 

Drug classification refers to how a drug 

should be classified—as a single source 

drug, innovator multiple source drug, or 

noninnovator multiple source drug—for 

the purposes of determining the correct 

rebates that each manufacturer owes the 

States. 

Although much of this law is selfimplementing, we proposed a series of 

regulatory amendments at §§ 447.509 

and 447.510 to implement and codify 

the statutory changes in regulation. We 

proposed that misclassification of a drug 

under the MDRP has occurred or is 

occurring when a manufacturer reports 

and certifies to the agency a drug 

category or drug product information 

relating to that COD that is not 

supported by the statutory and 

regulatory definitions of S, I, or N drug. 

We also defined a misclassification as a 

situation in which a manufacturer is 

correctly reporting its drug category or 

drug product information for a COD but 

is paying a different rebate amount to 

the States than is supported by the 

classification. 

MSIAA also amended the Act to 

expressly require a manufacturer to 

report not later than 30 days after the 

last day of each month of a rebate period 

under the agreement, such drug product 

information as the Secretary shall 

require for each of the manufacturer’s 

covered outpatient drugs. We proposed 

a definition of ‘‘drug product 

information’’ for the purposes of the 

MDRP. 

Similarly, MSIAA amended the Act to 

specify that the reporting of false 

information, including information 

related to drug pricing, drug product 

information, and data related to drug 

pricing or drug product information, 

would also be subject to possible civil 

monetary penalties (CMPs) by the 

Department of Health and Human 

Services (HHS) Office of the Inspector 

General (OIG), and to provide specific 

new authority to the Secretary to issue 

CMPs related to knowing 

misclassifications of drug product or 

misreported information. These OIG 

authorities are not the subject of this 

rulemaking. 

Under MSIAA, if a manufacturer fails 

to correct the misclassification of a drug 

in a timely manner after receiving 

notification from the agency that the 

drug is misclassified, in addition to the 

manufacturer having to pay past unpaid 

rebates to the States for the misclassified 

drug if applicable, the Secretary can 

take any or all of the following actions, 

including correcting the 

misclassification, suspending the 

misclassified drug from the MDRP, 

imposing CMPs, or ultimately 

terminating the manufacturer’s 

participation in the MDRP. 

Codifying these statutory amendments 

in our regulations provides an 

opportunity for the agency to give 

additional clarity to and guidance on 

the new legal authorities for ensuring 

oversight of, compliance with, and 

enforcement of the provisions of the 

MDRP, and ultimately to ensure that 

Federal and State programs are 

receiving appropriate rebates and that 

CMS continues to be a stringent steward 

of taxpayer monies. 

C. MDRP Program Administration 

Proposed Changes 

In order to increase efficiency and 

economy of directing overall MDRP 

operations, resources, and activities to 

better facilitate the needs of Medicaid 

beneficiaries, we proposed a number of 

new regulatory policies and 

clarifications of existing policies. 

Specifically, consistent with our 

statutory authorities, we proposed to 

define, specify, or amend the definitions 

for COD, internal investigation (for 

restatement purposes outside of a 3-year 

time window), manufacturer (for 

National Drug Rebate Agreement 

(NDRA) purposes), market date, 

noninnovator multiple source drug, 

drug product information, and vaccine 

for the purposes of the MDRP. We also 

proposed to specify that the rebate 

provisions for a drug other than a single 

source drug or an innovator multiple 

source drug apply to an array of drugs, 

including those that may not satisfy the 

definition of noninnovator multiple 

source drug. 

In addition, we proposed new 

policies, including to add a time 


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79022 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

3The terms ‘‘base date AMP,’’ ‘‘baseline AMP,’’ 

and ‘‘base AMP’’ are used interchangeably within 

this document. 

limitation on manufacturers’ ability to 

initiate audits with States, to further 

clarify and establish the requirements 

for FFS pharmacy reimbursement, and 

to clarify the required collection of all 

National Drug Codes (NDCs) for single 

and multiple source physicianadministered drugs to receive FFP and 

secure manufacturer rebates. 

We also proposed to revise Medicaid 

managed care standard contract 

requirements to adopt a requirement for 

the inclusion of Bank Identification 

Number and Processor Control Number 

(BIN/PCN) numbers on Medicaid 

enrollee identification cards for 

pharmacy benefits, as well as enhance 

drug cost transparency by adopting 

specific requirements relating to the 

third-party administration of the 

pharmacy benefit. We provide 

additional background later in this rule. 

1. Proposal To Modify the Definition of 

Covered Outpatient Drug 

In the 2016 COD final rule (81 FR 

5278), we finalized a regulatory 

definition of covered outpatient drug in 

§ 447.502 that substantially mirrors the 

statutory definition and is consistent 

with section 1927(k)(3) of the Act. The 

definition includes a limiting definition 

which exempts from the COD 

definition, and thus from rebates, any 

drug, biological product, or insulin 

provided as part of, or as incident to and 

in the same setting as, (and for which 

payment may be made under this title 

as part of payment for the following and 

not as direct reimbursement for the 

drug) certain health care setting or 

situations described in section 

1927(k)(3). However, we never clarified 

what the term ‘‘direct reimbursement’’ 

means for the purposes of defining those 

situations under which a State could 

bill a manufacturer for a rebate for a 

COD when the COD is part of an 

inclusive payment for the COD and 

related services. In regulation, we 

proposed to define the term direct 

reimbursement at § 447.502 so that 

States know those situations in which 

the limiting definition would not apply 

such that a State could bill for a rebate. 

CMS received several thoughtful 

comments on this issue, and based on 

these comments, we realized the 

proposed language did not adequately 

clarify the policy. Thus, we are further 

refining the definition to more clearly 

delineate the situations in which the 

limiting definition would not apply. 

2. Proposed Definition of an Internal 

Investigation for Purposes of Pricing 

Metric Revisions 

In accordance with section 1927(b)(3) 

of the Act, § 447.510 of the applicable 

regulations, and the terms of the NDRA, 

manufacturers are required to report 

certain pricing and drug product 

information to CMS on a timely basis or 

else they could incur penalties or other 

compliance and enforcement measures. 

In the 2016 COD final rule, we 

established § 447.510(b)(1), which 

provides that a manufacturer must 

report to CMS any revision to AMP, best 

price, customary prompt pay discounts, 

or nominal prices (pricing data) for a 

period not to exceed 12 quarters from 

the quarter in which the data were due 

unless enumerated exceptions apply. 

See § 447.510(b)(1)(i) through (vi). 

The existing regulation at 

§ 447.510(b)(1)(v) provides an exception 

to the 12-quarter price reporting rule if 

the change is being made to address 

specific rebate adjustments to States by 

manufacturers, as required by CMS or 

court order, or under an internal 

investigation or an OIG or Department 

of Justice (DOJ) investigation. However, 

up to this point, we have not defined 

the term internal investigation, which 

has led to different interpretations of the 

nature of an internal investigation. 

Therefore, we proposed to add a 

definition of internal investigation at 

§ 447.502 and additional clarity around 

the 12-quarter price reporting rule at 

§ 447.510. Based on comments we 

received, we are finalizing as proposed 

except we are adding the term 

‘‘possible’’ to ‘‘fraud, abuse or violation 

of law or regulation’’. 

3. Proposal To Modify the Definition of 

Manufacturer for National Drug Rebate 

Agreement (NDRA) Compliance 

Purposes 

We proposed to further refine the 

definition of manufacturer to clarify that 

a manufacturer includes all other 

manufacturers that are associated or 

affiliated with that manufacturer. This 

was intended to clarify that once a 

manufacturer has entered into a rebate 

agreement with CMS, all entities (with 

their applicable labeler codes) that are 

associated or affiliated with a 

manufacturer must have a rebate 

agreement in effect in order for the 

manufacturer to satisfy the statutory 

requirement that the manufacturer have 

a rebate agreement in effect with the 

Secretary. 

We appreciate the thoughtful 

comments received on this issue, and 

we determined not to finalize the 

proposed policy at this time. We are 

continuing to review the input provided 

by commenters, which may inform 

future rulemaking on this topic. 

4. Proposal To Establish a Definition of 

Market Date for a COD for the Purposes 

of Determining a Base Date AMP for a 

COD 

The rebates due by manufacturers are 

calculated based on statutory formulas 

described in section 1927(c) of the Act 

and consist of a basic rebate and, in 

some cases, an additional rebate that is 

applicable when an increase in the 

AMP, with respect to each dosage, form, 

and strength of a drug, exceeds the rate 

of inflation. A key factor in the 

calculation of the additional rebate is 

the base date AMP 3 of the drug, a value 

that is determined based on the market 

date of the drug. Manufacturers are 

required to report the market date of 

each dosage form and strength of a COD 

for all of their CODs. The term market 

date has not been previously defined in 

regulation for purposes of the MDRP, 

and CMS has received numerous 

questions regarding the determination of 

market date. Accordingly, we proposed 

to define the term market date at 

§ 447.502 for the purpose of the MDRP 

and are finalizing as proposed. 

5. Proposal To Modify the Definition of 

Noninnovator Multiple Source Drug 

As discussed previously in the 

proposed rule, section 6(c) of MSIAA 

included a number of amendments to 

statutory definitions in section 1927 of 

the Act. One of the amendments to the 

statutory definitions was to remove the 

phrase ‘‘was originally marketed’’ from 

the definition of an I drug and replace 

it with ‘‘is marketed.’’ We also made 

conforming changes to the regulatory 

definition of an I drug in the 2020 final 

rule. 

These amendments should have 

prompted a corresponding change to the 

regulatory definition of noninnovator 

multiple source (N) drug in the 2020 

final rule to align with the statutory and 

regulatory change to the definition of an 

I drug, however we neglected to include 

the change. Therefore, we proposed to 

amend the definition of an N drug at 

§ 447.502 to maintain the clear 

distinction between an I drug and an N 

drug and are finalizing as proposed. 

6. Proposal To Define Vaccine for the 

Purposes of the MDRP Only 

Section 1927(k)(2)(B) of the Act 

specifically excludes vaccines from the 

definition of COD for purposes of the 

MDRP. This exclusion is codified in 

paragraph (1)(iv) of the regulatory 

definition of COD at § 447.502. Section 

1927 of the Act does not define vaccine. 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79023 

4 J codes are a subset of the Healthcare Common 

Procedure Coding System (HCPCS) Level II code set 

used to primarily identify injectable drugs. 

5https://www.medicaid.gov/medicaid/ 

prescription-drugs/state-prescription-drugresources/physician-administered-drugs-pad/ 

index.html. 

6https://www.govinfo.gov/content/pkg/CFR-2007- 

title42-vol4/pdf/CFR-2007-title42-vol4-sec447- 

520.pdf. 

We proposed a definition of vaccine 

at § 447.502 for the purpose of 

identifying products that do not satisfy 

the definition of COD and are therefore 

not subject to possible required coverage 

under the prescribed drugs benefit 

consistent with section 1927 of the Act 

and applicable rebate liability under the 

MDRP. We noted that the regulatory 

definition of vaccine is intended to be 

established solely for the purposes of 

the MDRP and is intended to be 

applicable only to that program and 

Medicaid expansion CHIP programs 

(that is, CHIP programs operating 

pursuant to 42 CFR 457.70(a)(2) and (c)). 

It is not intended to apply under any 

title XIX statutory provisions other than 

section 1927(k)(2), or to separate CHIPs 

operating pursuant to 42 CFR 

457.70(a)(1) and (d), or for purposes of 

the Vaccines for Children (VFC) 

Program. Nor is it intended to apply to 

any other programs within CMS or any 

other agencies within HHS (for example, 

the Food and Drug Administration 

(FDA), Centers for Disease Control and 

Prevention (CDC), or Health Resources 

and Services Administration (HRSA)). 

Rather, we stated that the proposed 

changes would only specify which 

products are vaccines and are therefore 

excluded from the definition of a COD 

under the MDRP and thus are not 

subject to section 1927, including to 

MDRP rebate liability; the proposed 

changes would not apply to any 

applicable Federal or State requirements 

to cover vaccines for Medicaid 

beneficiaries, as applicable. We 

appreciate the thoughtful comments we 

received on this issue. At this time, we 

are not finalizing the proposed 

regulatory definition. We are continuing 

to review the input provided by 

commenters, which may inform future 

rulemaking on this topic. 

7. Proposal To Account for Stacking 

When Determining Best Price 

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

to add language to make clearer that the 

manufacturer must adjust the best price 

for a drug for a rebate period if 

cumulative discounts, rebates, or other 

arrangements to best price eligible 

entities subsequently adjust the prices 

available from the manufacturer, and 

that those discounts, rebates, or other 

arrangements must be ‘‘stacked’’ for a 

single transaction to determine a final 

price realized by the manufacturer for a 

drug. CMS received a number of 

thoughtful comments on this issue, and 

we have determined not to finalize the 

proposed regulation changes at this 

time. We are continuing to review the 

input provided by commenters. We 

intend to collect information through a 

separate Paperwork Reduction Act 

(PRA) request to collect additional 

information related to manufacturers’ 

stacking methodologies, which may 

inform future rulemaking on this topic. 

8. Proposal To Establish a Time 

Limitation for Audits Over Utilization 

Data With States: 12-Quarter Rebate 

Dispute Time Limitation 

Currently, there is no time limit for a 

manufacturer to initiate an audit or 

resolve previously disputed State 

utilization data with respect to rebates 

owed, and section 1927 of the Act does 

not impose a specific timeframe on a 

manufacturer’s audit authority. We 

proposed to limit the time period during 

which manufacturers may initiate 

disputes, hearing requests, and audits of 

State-invoiced utilization units to 12 

quarters from the last day of the quarter 

from the date of State invoice to the 

manufacturer. Upon reviewing 

comments, we believe referencing the 

invoice postmark date instead of the 

date of the State invoice offers the same 

clarity for both States and 

Manufacturers on the timeline initiation 

and would align with previous DP 

policy. Therefore, we are finalizing as 

proposed, with the exception of 

referencing ‘‘postmark date’’ instead of 

‘‘the date of the State invoice’’. 

9. Proposal Regarding Drug Price 

Verification Through Data Collection 

Section 1927(b)(3)(B) of the Act 

authorizes the Secretary to ‘‘survey 

wholesalers and manufacturers that 

directly distribute their [CODs], when 

necessary, to verify manufacturer 

prices’’ reported under section 

1927(b)(3)(A) of the Act. Under this 

authority, we proposed rules to describe 

those situations when it would be 

considered ‘‘necessary’’ for such surveys 

to be sent to manufacturers and 

wholesalers, and the information that 

would be requested to use in order to 

verify the reported prices at issue. 

We appreciate the thoughtful 

comments we received on this issue, 

and we determined not to finalize the 

proposed policy at this time. We are 

continuing to review the input provided 

by commenters, which may inform 

future rulemaking on this topic. 

10. Proposal To Clarify and Establish 

Requirements for FFS Pharmacy 

Reimbursement 

In the 2016 COD final rule, we 

finalized at § 447.518 moving FFS 

pharmacy reimbursement to an actual 

acquisition cost-based reimbursement, 

under which pharmacists would be paid 

for the ingredient costs of the drug that 

was dispensed, and a professional 

dispensing fee (PDF) that reflected their 

costs of dispensing. We proposed to 

revise § 447.518, ‘‘State plan 

requirements, findings, and 

assurances,’’ in paragraph (d)(1) to 

clarify State requirements regarding 

pharmacy ingredient costs and 

professional dispensing fees to be 

consistent with the applicable statutory 

and regulatory requirements, specifying 

in particular that any dispensing fee 

surveys must be based on actual 

pharmacy dispensing costs data and not 

market research data. We are finalizing 

as proposed. 

11. Proposals Relating to Section 

1927(a)(7) of the Act and Federal 

Financial Participation (FFP): 

Conditions Relating to PhysicianAdministered Drugs (PADs) 

In accordance with section 1927(a)(7) 

of the Act, for payment to be available 

under section 1903 of the Act, and for 

States to secure applicable Medicaid 

rebates, States are to provide for the 

collection and submission of utilization 

data and coding (such as J-codes 4 and 

NDC numbers) for a COD that is a 

physician-administered single source 

drug as determined by the Secretary, or 

that is a multiple source drug that is 

determined by the Secretary to be a top 

20 high dollar volume PAD dispensed 

under Medicaid (as identified on a 

published list).5 Regulations at 

§ 447.520 were established to 

implement these statutory provisions in 

the final rule entitled ‘‘Medicaid 

Program; Prescription Drugs’’ (72 FR 

39142, 39162) (hereinafter referred to as 

the 2007 final rule), specifying the 

conditions for FFP for PADs.6

We proposed to amend § 447.520 to 

require States to collect NDC 

information on all covered outpatient 

single and multiple source PADs and to 

specify that States must invoice for 

rebates for all covered outpatient PADs 

to receive FFP and secure manufacturer 

rebates. We are finalizing as proposed 

but have added a discussion of our 

statutory authority for extending this 

requirement by regulation beyond the 

top 20 multiple source drugs already 

required by statute. 


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79024 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

12. Proposal Related to Suspension of a 

Manufacturer’s Drug Rebate Agreement 

We proposed regulatory changes to 

further implement section 

1927(b)(3)(C)(i) of the Act, which 

provides authority to suspend a rebate 

agreement for a manufacturer’s failure to 

timely report drug pricing or drug 

product information to the agency, 

when there is a continued failure to 

report after a 90-calendar day deadline 

is imposed by the agency. Specifically, 

we proposed in § 447.510(i) that a 

manufacturer must report information 

required under § 447.510(a) and (d), and 

the failure to report such information to 

the agency after the end of an imposed 

90-calendar day period would result in 

suspension of the manufacturer’s rebate 

agreement, and that such agreement 

would not be reinstated until such 

information was reported in full and 

certified, but not for a period of 

suspension of less than 30 calendar 

days. We are finalizing as proposed. 

13. Proposals Related to Managed Care 

Plan Standard Contract Requirements 

a. Requirement of BIN/PCN Inclusion on 

Medicaid Managed Care Pharmacy 

Identification Cards 

Patients enrolled in health care plans, 

including in Medicaid managed care 

plans such as Medicaid managed care 

organizations (MCOs), prepaid inpatient 

health plans (PIHPs), or prepaid 

ambulatory health plans (PAHPs), 

generally use enrollee identification 

cards at the pharmacy so they can 

obtain prescription drug benefits, as 

well as allow pharmacies to process and 

bill claims in real-time. Health plans use 

two codes on the card to identify a 

patient’s prescription health insurance 

and benefits—the National Council for 

Prescription Drug Programs (NCPDP) 

Processing Bank Identification Number 

(BIN) and Processor Control Number 

(PCN). This information, along with a 

group number identifier, can specify 

that a patient is covered by a specific 

insurance group, such as being a 

Medicaid managed care enrollee. 

Without the BIN, PCN, and group 

number identifiers, it is often difficult to 

determine from a Medicaid managed 

care enrollee’s identification card if he 

or she is covered under a Medicaid 

managed care plan or under nonMedicaid coverage, such as an 

employer-sponsored group health plan 

or individual market insurance, offered 

by the same organization or entity that 

offers the Medicaid managed care plan. 

While the use of Medicaid-specific 

BIN, PCN, and group number identifiers 

does not assist in identifying claims for 

drugs purchased under the 340B Drug 

Pricing Program (340B Program), it may 

help States and their managed care 

plans avoid invoicing for rebates on 

340B drugs by identifying which plans 

are covered under Medicaid. Section 

340B(a)(5)(A) of the Public Health 

Service Act (the PHS Act) prohibits 

duplicate discounts for drugs purchased 

under the MDRP. Identifying claims 

where the dispensed drug has been 

discounted under the 340B Program is 

necessary to avoid duplicating that 

discount in the MDRP. 

Therefore, under the authority of 

section 1902(a)(4) of the Act, to ensure 

effective implementation of and 

compliance with sections 1927(a)(5)(C) 

and 1927(j)(1) of the Act, we proposed 

to amend § 438.3(s) to require States to 

require (via standard contract 

requirements) MCOs, PIHPs, and PAHPs 

that provide coverage of CODs to assign 

and exclusively use unique Medicaid 

BIN, PCN, and group number identifiers 

for all Medicaid managed care enrollee 

identification cards for pharmacy 

benefits. Based on comments received, 

we are changing the requirement to be 

a unique BIN/PCN combination with a 

group number identifier, as well as the 

effective date. 

b. Drug Cost Transparency in Medicaid 

Managed Care Contracts 

Medicaid managed care plans often 

contract with a subcontractor Pharmacy 

Benefit Manager (PBM) to operate the 

pharmacy benefit provided to Medicaid 

beneficiaries. For a Medicaid managed 

care plan to appropriately calculate and 

report its Medical Loss Ratio (MLR) 

under § 438.8, the plan must know from 

the subcontractor certain information 

relating to how much of the payments 

made to the Medicaid managed care 

plan by the State were used to pay for 

health care services and other specific 

categories outlined in § 438.8. To 

correctly report the MLR, a Medicaid 

managed care plan must distinguish 

between expenses that are for covered 

benefits (such as incurred claims for 

health care services and drug costs) and 

administrative expenses, such as fees 

paid to its PBM for PBM services (for 

example, claims adjudication and 

processing prior authorization requests). 

Therefore, we proposed that MCOs, 

PIHPs, and PAHPs that provide 

coverage of CODs require any 

subcontractor to report the amounts 

related to the incurred claims described 

in § 438.8(e)(2) separately from any 

administrative costs, fees, and expenses 

of the subcontractor. Based on 

comments received, we are finalizing as 

proposed, with a few clarifying changes. 

We are adding ‘‘MCO, PIHP or PAHP’’ 

in a few places to be consistent with 

other paragraphs in 42 CFR 438.3(s) and 

are adding a subsection to include an 

effective date, which will be the first 

rating period for contracts beginning on 

or after 1 year following the effective 

date of the rule. 

14. Proposal To Rescind Revisions Made 

by the December 31, 2020 Final Rule To 

Determination of Best Price (§ 447.505) 

and Determination of Average 

Manufacturer Price (AMP) (§ 447.504) 

Consistent With Court Order 

On May 17, 2022, the United States 

District Court for the District of 

Columbia vacated and set aside the 

‘‘accumulator adjustment rule of 2020’’ 

in response to a complaint filed against 

the Secretary regarding the accumulator 

provisions within the 2020 final rule 

‘‘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.’’ This final rule had 

revised the conditions for excluding 

patient assistance from AMP at 

§ 447.504(c)(25) through (29) and (e)(13) 

through (17), and best price at 

§ 447.505(c)(8) through (12), to add 

language (effective January 1, 2023) that 

would require manufacturers to 

‘‘ensure’’ the full value of the assistance 

provided by patient assistance programs 

is passed on to the consumer and that 

the pharmacy, agent, or other AMP or 

best price eligible entity does not 

receive any price concession. While the 

district court’s order focused on the 

changes to the patient assistance 

program exclusions from best price 

determinations, for consistency, we 

proposed to withdraw the changes 

related to patient assistance to both the 

AMP and best price sections made by 

the 2020 final rule so that the 

regulations would revert back to the 

language that has been in place since 

2016. We are finalizing this provision as 

proposed. 

15. Proposals Related to Amendments 

Made by the American Rescue Plan Act 

of 2021—Removal of the Manufacturer 

Rebate Cap (100 Percent AMP) 

Section 9816 of the American Rescue 

Plan Act of 2021 (Pub. L. 117–2, enacted 

March 11, 2021) sunsets the limit on 

maximum rebate amounts for single 

source and innovator multiple source 

drugs by amending section 1927(c)(2)(D) 

of the Act to add ‘‘and before January 1, 

2024,’’ after ‘‘December 31, 2009.’’ In 

accordance with section 1927(c)(3)(C)(i) 

of the Act and the special rules for 

application of the provision in section 


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1927(c)(3)(C)(ii)(IV) and (V) of the Act, 

this sunset provision also applies to the 

limit on maximum rebate amounts for 

CODs other than single source or 

innovator multiple source drugs. 

Therefore, to conform § 447.509 with 

section 1927(c)(2)(D) of the Act, as 

amended by the American Rescue Plan 

Act of 2021, and sections 

1927(c)(3)(C)(i), (ii)(IV), and (ii)(V) of 

the Act, we proposed to make 

conforming changes to § 447.509 to 

reflect the removal of the limit on 

maximum rebate amounts for rebate 

periods beginning on or after January 1, 

2024. We are finalizing this provision as 

proposed. 

16. Request for Information—Comments 

on Issues Relating To Requiring a 

Diagnosis on Medicaid Prescriptions as 

a Condition for Claims Payment 

We solicited comments on the patient 

care, clinical, and operational impact of 

requiring that a patient’s diagnosis be 

included on a prescription as a 

condition of a State receiving FFP for 

that prescription. We were particularly 

interested in understanding any 

operational implications, privacy 

related concerns, associated burden, and 

approaches to negate any foreseeable 

impact on beneficiaries and providers, 

including what steps would be needed 

by States to successfully implement a 

Medicaid requirement for diagnosis on 

prescriptions. 

We appreciate the thoughtful 

comments we received on this issue, 

and we determined we are not moving 

forward with any proposed regulations 

regarding this topic at this time. 

17. Background on Coordination of 

Benefits/Third Party Liability 

Regulation Due to Bipartisan Budget Act 

of 2018 (BBA 2018) 

Medicaid is generally the payer of last 

resort, which means that certain 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 the 

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 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. 

To update the regulation for the 

recent statutory changes, a final rule 

was published on December 31, 2020, 

which went into effect on March 1, 

2021, to include changes as authorized 

under the BBA 2018. We submitted a 

correction due to an omission in the 

regulation text 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 up to 

90 days. 

D. Applicability and Compliance 

Timeframes 

Generally, we are finalizing that this 

rule, including the proposals being 

finalized herein, will be effective 60 

days after publication of this final rule, 

with the exception of two provisions in 

the Standard Medicaid Managed Care 

Contract Requirements section. We are 

including Table 1 with these provisions 

and relevant timing information and 

dates. We encourage all interested 

parties to confirm the applicability dates 

indicated in this final rule for any 

changes from the proposed. 

TABLE 1—APPLICABILITY DATES

Regulation text Applicability date 

§ 438.3(s)(7) ......... First rating period for contracts with MCOs, PIHPs, and PAHPs beginning on or after 1 year following November 19, 2024. 

§ 438.3(s)(8) ......... First rating period for contracts with MCOs, PIHPs, and PAHPs beginning on or after 1 year following November 19, 2024. 

II. Summary of Proposed Provisions, 

Analysis of and Responses to Public 

Comments, and Provisions of the Final 

Rule 

The proposed rule to implement 

regulatory policies in the Medicaid Drug 

Rebate Program (MDRP) related to the 

new legislative requirements in the 

Medicaid Services Investment and 

Accountability Act of 2019 (MSIAA), 

which address drug misclassification, as 

well as drug pricing and product data 

misreporting by manufacturers, was 

published on May 26, 2023 (88 FR 

34238). As discussed in the proposed 

rule, we also made proposals to enhance 

program integrity and improve program 

administration for the MDRP. The 

proposals included a time limitation on 

manufacturers initiating audits with 

States, clarifications and requirements 

for State fee-for-service (FFS) pharmacy 

reimbursement, and the establishment 

of conditions relating to States claiming 

Federal Financial Participation (FFP) for 

physician-administered drugs (PADs). 

Other proposals included two new 

requirements for contracts between 

States and their Medicaid managed care 

plans in connection with coverage of 

covered outpatient drugs (CODs). In 

addition, the rule included a proposal 

not directly related to the MDRP that 

would modify the third-party liability 

regulation based on the Bipartisan 

Budget Act of 2018 (BBA of 2018). 

Finally, the proposed rule solicited 

comments related to the issues, benefits, 

and challenges of requiring the 

inclusion of diagnoses on Medicaid 

prescriptions. 

We received 128 comments from drug 

manufacturers, membership 

organizations, law firms, pharmacy 

benefit managers (PBMs), State 

Medicaid agencies, advocacy groups, 

not-for-profit organizations, consulting 

firms, health care providers, employers, 

health insurers, health care associations, 

and individuals. The comments ranged 

from general support or opposition to 

the proposed provisions to very specific 

questions or comments regarding the 

proposed changes. 

We also received public comments on 

this regulation that were out of scope for 

this rulemaking, and, therefore, are not 

being addressed in this rule. The 

following summarizes comments about 

the proposed rule in general or about 

specific issues that are not addressed in 

this final rule. 

Comment: Several commenters 

submitted comments that were outside 

of the scope of the proposed rule. 

Examples of out-of-scope comments 

include but are not limited to whether 

Medicaid accepts JW/JZ modifiers when 

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standing radiology offices, the amount 

charged for a specific drug per month, 

and comments on CMS’ ‘‘Medicare Part 

D Drug Inflation Rebates Paid by 

Manufacturers: Initial Memorandum, 

Implementation of Section 1860D–14B 

of Social Security Act, and Solicitation 

of Comments,’’ that CMS issued on 

February 9, 2023. 

Response: We appreciate commenters’ 

interest in these topics. However, 

because these comments are outside of 

the scope of the proposed rule, we are 

not addressing them in this final rule. 

Comment: A commenter stated that 

Federal agencies must align their rules 

and proposals to ensure compatibility. 

The commenter believes there are a 

variety of currently proposed, pending, 

or expected rules from CMS and the 

Office of the National Coordinator for 

Health Information Technology (ONC) 

that are not completely independent 

from each other; they noted, in some 

cases, there may be components of 

different rules that contradict each 

other, and in other cases, they may be 

written in ways that unnecessarily 

increase the burden on one or more 

parties subject to the rule. Specifically, 

the commenter mentioned CMS 

discusses requiring NDC codes for 

medications in this rule, but the recent 

ONC Health Data, Technology, and 

Interoperability: Certification Program 

Updates, Algorithm Transparency, and 

Information Sharing (HTI–1) Proposed 

Rule discusses the possibility of 

deprecating support for NDC codes in 

its certification programs in favor of 

always requiring use of RxNorm for 

medications. Concerns were raised that 

the rules were not coordinated so that 

their requirements are compatible and 

executable without placing additional 

burden on individuals or organizations 

that need to implement more than one 

rule. 

Response: We appreciate the request 

for Federal agencies to align their rules 

to ensure compatibility. We are 

addressing only those proposals that 

were part of the proposed rule (88 FR 

34238 through 34296). See also the 

discussion in section II.L., Federal 

Financial Participation (FFP): 

Conditions Relating to Physician 

Administered Drugs related to the HTI– 

1 final policy and CMS and ONC 

collaboration. 

Comment: A commenter requested 

CMS postpone finalizing the proposals 

in the proposed rule. The commenter 

encouraged CMS to actively seek 

additional feedback from interested 

parties, including individuals and 

advocacy organizations who represent 

those most affected by Medicaid 

coverage challenges. 

Response: Through the rulemaking 

process, the proposed rule was 

published, and the public was provided 

the opportunity to comment on the 

proposed rule’s provisions. We have 

reviewed and addressed public 

comments and will proceed with 

finalizing the rule as noted herein. 

A. Payment of Claims (42 CFR 433.139) 

In the proposed rule, we included 

regulatory revisions that would make 

technical changes to the process for 

making payment of Medicaid claims. As 

background, we noted that in 1980, 

under the authority in section 

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

regulations at part 433, subpart D, that 

established requirements for State 

Medicaid agencies to support the 

coordination of benefits (COB) effort by 

identifying third party liability. We 

pointed out that § 433.139(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. 

To better align our regulations with 

statute, we proposed to revise 

§ 433.139(b)(3)(i) by adding—‘‘that 

requires 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 up to 

90 days.’’ We also proposed to revise 

§ 433.139(b)(3)(i) and (b)(3)(ii)(B) by 

adding ‘‘within’’ prior to the waiting 

periods Medicaid has to pay claims for 

preventive pediatric and medical child 

support claims. Additionally, we 

proposed to revise § 433.139(b)(3)(ii)(B) 

by removing ‘‘from’’ and replacing it 

with ‘‘after;’’ and by removing ‘‘has not 

received payment from the liable third 

party’’ and adding the following 

language at the end of the sentence 

‘‘provider of such services has initially 

submitted a claim to such third party for 

payment for such services, except that 

the State may make such payment 

within 30 days after such date if the 

State determines doing so is costeffective and necessary to ensure access 

to care.’’ These revisions in language 

would permit States to pay claims 

sooner than the specified waiting 

periods, when appropriate. 

We received two public comments on 

this proposal. The following is a 

summary of the comments we received 

and our response. 

Comment: The commenters stated 

that they were in support of our 

proposed regulation changes. 

Response: We appreciate the support 

on this section. 

After consideration of public 

comments on these provisions, we are 

finalizing as proposed. 

B. Standard Medicaid Managed Care 

Contract Requirements (§ 438.3(s)) 

1. BIN/PCN on Medicaid Managed Care 

Enrollee Identification Cards 

In the proposed rule, we included a 

provision to require States that contract 

with MCOs, PIHPs, or PAHPs that 

provide coverage of CODs, to require 

those managed care plans to assign and 

exclusively use unique Medicaidspecific BIN, PCN, and group number 

identifiers for all Medicaid managed 

care enrollee identification cards for 

pharmacy benefits. Although not 

required to issue enrollee identification 

cards, it is a standard business practice 

for the MCOs, PIHPs, and PAHPs to 

routinely issue such cards for pharmacy 

benefits for Medicaid enrollees. We 

proposed that the States’ managed care 

contracts with MCOs, PIHPs, and 

PAHPs must comply with this new 

requirement no later than the beginning 

of the State’s next rating period for 

Medicaid managed care contracts 

following the effective date of the final 

rule adopting this new regulatory 

provision. A rating period is defined in 

§ 438.2 as a period of 12 months 

selected by the State for which the 

actuarially sound capitation rates are 

developed and documented in the rate 

certification submitted to CMS, and 

typically begins with a calendar year or 

a State’s fiscal year. We indicated that 

the delay between the effective date of 

the final rule and the start of the next 

rating period would provide both States 

and the affected Medicaid managed care 

plans with adequate time to prepare 

both the necessary contract terms and 

finish the necessary administrative 

processes for creating and issuing 

enrollee identification cards with these 

newly required Medicaid-specific BIN, 

PCN, and group number identifiers. 

This proposal was made under our 

authority in section 1902(a)(4) of the Act 

to specify ‘‘methods of administration’’ 

that are ‘‘found by the Secretary to be 

necessary for . . . proper and efficient 

operation.’’ Having States require their 

MCOs, PIHPs, or PAHPs that provide 

CODs to Medicaid enrollees to add these 

types of unique identifiers to the 

enrollee identification cards would 

make the Medicaid drug program run 

more efficiently and improve the level 

of pharmacy services provided to 

Medicaid enrollees. With the inclusion 

of Medicaid-specific BIN, PCN, and 

group number identifiers on the enrollee 


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7https://www.cms.gov/medicare/coverage/ 

prescription-drug-coverage/part-d-informationpharmaceutical-manufacturers. 

identification cards issued to the 

enrollees of MCOs, PIHPs, and PAHPs, 

pharmacies would be able to identify 

patients as Medicaid enrollees, and 

better provide pharmacy services. This 

would be helpful to all parties to ensure 

that Medicaid benefits are provided 

correctly, including confirming any 

accurate cost sharing amounts, along 

with helping to ensure that claims are 

billed and paid for appropriately. 

This proposed change may help to 

reduce the incidence of 340B Program 

duplicate discounts by identifying 

Medicaid managed care plans. Section 

340B(a)(5)(A) of the PHS Act prohibits 

duplicate discounts; that is, 

manufacturers are not required to both 

provide a 340B discounted price and 

pay the State a rebate under the 

Medicaid drug rebate program for the 

same drug. 

Accordingly, we proposed to amend 

the regulatory language in § 438.3(s) to 

add paragraph (s)(7) to mandate that 

Medicaid managed care contracts 

require that Medicaid MCOs, PIHPs, and 

PAHPs that provide coverage of CODs 

assign and exclusively use unique 

Medicaid BIN, PCN, and group number 

identifiers for all Medicaid managed 

care enrollee identification cards for 

pharmacy benefits. We proposed that 

Medicaid managed care contracts must 

include this new requirement (which 

would require compliance by MCOs, 

PIHPs, and PAHPs) no later than the 

next rating period for Medicaid 

managed care contracts, following the 

effective date of the final rule adopting 

this new provision. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Many commenters 

supported the use of unique Medicaidspecific BIN, PCN, and group number 

identifiers for managed care enrollees to 

ensure proper enrollee identification, 

application of benefits, and claims and 

billing processes, which would aid in 

reducing uncertainty and ambiguity 

with Medicaid prescribed drug claims. 

Commenters believe that this will help 

pharmacies identify patients as 

Medicaid managed care enrollees and 

support administration of appropriate 

Medicaid benefits. Some commenters 

also noted that many States report that 

they either already require unique BIN, 

PCN, and group identifier numbers or 

believe that this would be feasible to 

implement. 

Response: We appreciate the support 

and agree that unique BIN, PCN, and 

group number identifiers on Medicaid 

managed care pharmacy identification 

cards will be helpful in supporting the 

administration of the Medicaid program. 

Comment: Several commenters 

supported adding the requirement that 

Medicaid managed care enrollee 

identification cards contain BIN and 

PCN numbers but suggested that the 

requirement should be for a BIN and 

PCN group combination, instead of 

requiring unique identifiers separately. 

These commenters recommended that 

CMS clarify that the requirement would 

be met by the inclusion of a unique 

combination of BIN, PCN, and group 

number identifiers on Medicaid enrollee 

identification cards to identify a patient 

as a Medicaid enrollee with coverage 

through a specific Medicaid managed 

care plan contract. Other commenters 

suggested that requiring unique BIN and 

PCN combinations for managed care 

Medicaid enrollees would be more 

effective. 

Response: We agree that separate, 

unique BIN and PCN numbers would 

not be as effective as having a unique 

Medicaid-specific BIN and PCN 

combination, along with a group 

number identifier, to be issued for 

Medicaid managed care identification 

purposes. We understand that without 

having a unique BIN and PCN 

combination requirement, there could 

potentially be thousands of separate, 

individual new BINs and PCNs. 

Therefore, as we noted in the response 

to the previous comment, we are 

finalizing this requirement and are 

adding the term ‘‘combination’’ in this 

final rule so that a unique BIN and PCN 

combination, along with a group 

number identifier, will be assigned for 

Medicaid managed care enrollees’ 

identification cards. 

Comment: Several commenters 

suggested that a list of unique Medicaidspecific BIN and PCNs with effective 

dates be publicly published and 

updated in a timely manner. One 

commenter requested that CMS publish 

the list by surveying States for unique 

BIN and PCN numbers used for 

Medicaid managed care enrollees and 

publishing a list of all such BIN and 

PCN numbers, similar to how HHS 

publishes lists of BIN and PCN numbers 

used to identify Medicare Part D 

beneficiaries. Additionally, one 

commenter suggested that Medicare and 

Medicaid standardize the process by 

which the BIN and PCN numbers are 

published, along with the publication of 

an up-to-date list of the unique BIN and 

PCN numbers. 

Other commenters suggested that the 

States publish the lists on their 

websites, since they currently cannot be 

found in a centralized location. One of 

these commenters believes that the 

creation of a publicly published list of 

numbers would aid States’ monitoring 

and oversight efforts for this plan 

requirement. This commenter also 

recommended CMS provide guidance 

on pharmacy point of sale (POS) 

operations to aid associated State 

monitoring and oversight. 

Another commenter recommended 

that the BIN and PCN numbers be 

published on a list in machine readable 

form, mirroring how CMS publishes BIN 

and PCN numbers for Medicare Part D 

beneficiaries via various CMS web 

pages, such as the page entitled ‘‘Part D 

Information for Pharmaceutical 

Manufacturers.’’ 7

Response: We appreciate the 

recommendations from the commenters 

concerning the publication of a list with 

unique BIN and PCN identification 

numbers; however, we decline to adopt 

these suggestions. Because States have 

the option of publishing a listing of their 

MCOs, PIHPs, and PAHPs with the 

related BIN and PCN combinations, 

along with the group number identifiers 

in any format on their websites, CMS 

defers to States to determine if they 

believe this would improve operations 

to include this information in one 

centralized location. 

Comment: One commenter requested 

clarification on whether this 

requirement for unique BIN, PCN, and 

group number identifies is applicable to 

Title XXI CHIP, State-funded programs 

in addition to Title XIX Medicaid. 

Response: This regulation applies to 

Medicaid and CHIP managed care 

programs subject to the requirements in 

42 CFR part 438 in Title XIX (Medicaid). 

This regulation does not apply to the 

separate CHIP programs operating 

pursuant to 42 CFR 457 in Title XXI 

(State Children’s Health Insurance 

Program). States may also choose at 

their option to consider a similar 

standard for State-funded programs. 

Comment: Several commenters 

recommended changes to the 

applicability date for the requirement to 

include unique BIN, PCN, and group 

number identifiers on Medicaid 

managed care enrollee identification 

cards for pharmacy benefits. These 

commenters expressed concern with the 

proposed applicability date as they did 

not believe it was feasible to implement 

this requirement by the next rating 

period for Medicaid managed care 

contracts following the effective date of 

the final rule. Commenters indicated 

additional time was needed for 

necessary operational changes including 


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information system development, 

configuration and testing as well as the 

creation of new enrollee identification 

cards and associated distribution to 

enrollees. Commenters varied in the 

recommended delay with timeframes 

with recommendations ranging from 12 

to 18 months. 

One commenter recommended that 

the applicability date be accelerated to 

implement the inclusion of BIN, PCN, 

and group number identifiers before the 

next contract rating period for managed 

care plans as the commenter believes 

this could prevent 340B duplicate 

discounts. 

A few commenters were in support of 

unique BIN, PCN, and group number 

identifiers for each enrollee on 

Medicaid managed care enrollee 

identification cards but suggested that 

this requirement apply prospectively 

only to new Medicaid managed care 

plan contracts entered into or renewed 

after the effective date, as requiring midterm contractual amendments would be 

disruptive and burdensome. They 

requested additional time sufficient for 

systems development, configuration, 

testing, PBM support, and card 

development. A commenter stated that 

many State Medicaid programs enter 

into multi-year contracts with managed 

care plans that may still be in effect by 

the time this rule is finalized. 

Another commenter requested that as 

CMS finalizes an applicability date for 

this provision that it considers the need 

to update industry specifications that go 

through substantive, formal approval 

processes prior to a formal adoption by 

a standards-setting authority. The 

commenter suggested using existing 

standards and processes, when possible, 

for consistency between Medicare 

Advantage and Medicaid in the way 

these numbers are presented, if possible. 

Response: We appreciate the issues 

raised concerning the timeframe for 

including Medicaid-specific BIN and 

PCN combinations, along with group 

number identifiers on enrollee 

identification cards for Medicaid 

managed care enrollees. We agree that 

additional time may be needed for all 

MCOs, PIHPs, or PAHPs to implement 

these requirements. 

Therefore, we are finalizing the 

applicability date for this provision to 

be the first rating period for contracts 

with managed care plans beginning on 

or after 1 year following the effective 

date of this final rule. 

Comment: A few commenters stated 

that the BIN definition, format, and field 

used in pharmacy claims transactions 

would be changing as of the next 

version of the Telecommunication 

Standards named under HIPAA. One 

commenter noted that CMS recently 

proposed to update the NCPDP 

Telecommunication Standard in a 

proposed rule. The commenter stated 

that the proposal has not yet been 

finalized but is expected soon and will 

most likely require health plans to 

distribute new member enrollee 

identification cards during the 

implementation period. The commenter 

recommended that CMS should 

consider any unintended administrative 

impacts that could occur due to the 

timing of rule implementation and the 

resulting need to reissue enrollee 

identification cards. 

Response: We appreciate the 

information that was shared regarding 

the upcoming changes to the 

Telecommunication Standards. As 

stated previously, we are extending the 

applicability date in this final rule for 

this provision to be the first rating 

period for contracts with managed care 

plans beginning on or after 1 year 

following the effective date of this final 

rule. We believe this additional time 

will allow States and managed care 

plans additional time to undertake the 

operational activities associated with 

this requirement, including any changes 

to the Telecommunication standards. 

Comment: Multiple commenters 

supported the unique BIN, PCN, and 

group number identifier requirements 

and suggested additional policies to be 

developed to eliminate 340B Program 

duplicate discounts. Commenters 

believe that this provision will not fully 

address the risk of 340B duplicate 

discounts in Medicaid managed care 

and urged CMS to consider additional 

policies designed to avoid Medicaid and 

340B Program duplicate discounts, 

including, but not limited to, a ‘‘carve 

out’’ approach, wherein drugs 

purchased under the 340B Program may 

not be furnished to Medicaid enrollees, 

a claim-level identification approach, 

and requiring the usage of 340B Program 

claims modifiers. Another commenter 

believes that if 340B covered entities 

disclosed to insurers when drugs 

administered to their enrollees (or 

prescriptions filled in contracted 

pharmacies) were purchased via the 

340B Program, this would assist with 

the prohibition on duplicate discounts. 

Other commenters suggested that CMS 

should not allow providers to submit 

Medicaid claims until after completing 

a 340B eligibility screening and 

requiring States to provide detailed 

claim-level utilization data to 

manufacturers. One commenter 

recommended that comparable 

identifiers be used for medical benefit 

products. 

A few commenters suggested 

requiring pharmacies to enter BIN, PCN, 

and group number identifiers at the 

point of sale, so that having the 

identification of a Medicaid managed 

care enrollee can signal to the pharmacy 

to append the NCPDP ‘‘20’’ submission 

clarification code so that the claim can 

be excluded from States’ invoices to 

manufacturers for Medicaid rebates. 

Other commenters stated that there are 

challenges with requiring a point-of-sale 

modifier for contract pharmacies. Other 

commenters noted that 340B 

determination of a prescription drug 

claim is not always known at the point 

of sale. They stated that 340B 

determination is often made 

retrospectively based on several factors, 

such as the replenishment model and 

batch reporting to a clearinghouse. 

Multiple commenters stated that they 

oppose pharmacies being required to 

identify 340B claims either 

prospectively or retroactively, but 

support an alternative solution where 

third-party administrators provide 340B 

data to CMS. They also stated that there 

remains no requirement for pharmacies 

to implement a system to flag a claim as 

Medicaid. 

Several commenters recommended 

clarity on the dispute resolution process 

to determine if the State or the covered 

entity is responsible for remedying a 

duplicate discount in a particular 

situation. Commenters suggested that 

CMS issue guidance to States to 

establish a transparent and consistent 

dispute resolution process to resolve 

issues regarding duplicate Medicaid/ 

340B discounts between manufacturers 

and State Medicaid agencies. 

Commenters also stated that Medicaid 

managed care plans contracting with 

States, to help assure accountability on 

duplicate discounts, should be required 

to share data with manufacturers to 

permit identification of claims for 

which the drug was purchased under 

the 340B Program. 

Other commenters encouraged CMS 

to work with the Health Resources and 

Services Administration (HRSA) to 

ensure that Medicaid managed care plan 

utilization is added to the Medicaid 

Exclusion File (MEF) as a way to 

establish a mechanism to track and 

avoid duplicate discounts on Medicaid 

managed care plan utilization. A few 

commenters suggested that it would be 

more appropriate for HRSA to require 

that ‘‘340B patients’’ receive enrollee 

identification cards for their 340B 

prescription drug benefits with this type 

of plan identifier information through 

their 340B covered entities. 

Response: We believe that the new 

requirement for the inclusion of a 


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unique Medicaid-specific BIN and PCN 

combination, along with a group 

number identifier, may help States and 

their managed care plans avoid 

invoicing for rebates on 340B drugs by 

identifying which plans are covered 

under Medicaid. While we appreciate 

the comments received for additional 

ways to improve the operations of the 

340B Program, these suggestions are 

outside of the scope of this final rule. 

Comment: A few commenters 

expressed opposition to the exclusive 

use of unique Medicaid-specific 

identifiers on enrollee identification 

cards. Reasonings include that the 

addition of exclusive BIN and PCN 

numbers is insufficient policy action to 

reduce or eliminate 340B duplicate 

discounts and that the action is unduly 

burdensome and unlikely to have a 

meaningful impact on 340B duplicate 

discounts. One commenter requested 

that CMS allow for continued use of the 

existing identification numbers. 

Another commenter stated that the 

inclusion of identifiers on enrollee 

identification cards could make it easier 

to engage in discriminatory 

reimbursement for 340B covered entity 

providers. They stated that such 

discriminatory reimbursement could 

have a negative effect on certain 340B 

covered entities. Other commenters 

requested that CMS not implicate 

pharmacies in the process of identifying 

and reconciling 340B claims. 

One commenter was opposed to this 

BIN, PCN and group number identifier 

requirement since they believe the main 

purpose was to help States and managed 

care plans identify claims for drugs paid 

for under the 340B Program to help 

avoid duplicating discounts or rebates 

via the MDRP. For their managed care 

delivery system in which Medicaid 

managed care enrollees primarily access 

care from plans and contracted 

providers that do not participate in 

340B, the commenter stated that there 

would be a significant operational 

burden to deploy new enrollee 

identification cards with BIN, PCN, and 

group number identifiers without a 

corresponding benefit. 

Another commenter also stated that 

creating a unique BIN and PCN for each 

managed care plan would be unduly 

burdensome. They recommended 

amending this proposal such that this 

requirement would only apply to 

unique group number identifiers, and 

not BIN and PCN, on Medicaid managed 

care enrollee identification cards for 

pharmacy benefits. Other commenters 

recommended that Medicaid be 

consistent with the policy requiring 

Medicare Part D plan to use unique BIN 

and PCN combination identifiers, and 

not include group number identifiers, to 

identify enrollees. 

Response: We appreciate the concerns 

raised by the commenters but believe 

that mandating that States require their 

MCOs, PIHPs, and PAHPs that provide 

CODs to Medicaid enrollees to include 

a unique Medicaid-specific BIN and 

PCN combination, and group number 

identifiers, on the enrollee identification 

cards would make the Medicaid drug 

program run more efficiently, help 

avoid 340B duplicate discounts, and 

improve the level of pharmacy services 

provided to Medicaid beneficiaries. 

Pharmacies’ identification of patients 

as Medicaid enrollees based on the 

inclusion of Medicaid-specific BIN, 

PCN, and group number identifiers on 

the enrollee identification cards must 

not be used in any way to discriminate 

in the provision of healthcare services, 

and such alleged behavior may be 

referred to HHS’ Office for Civil Rights 

or other authorities. 

After considering the comments 

raised by the commenters, we are 

finalizing § 438.3(s) with some changes 

to the proposed regulatory text. We will 

modify § 438.3(s)(7) by: adding 

‘‘combination,’’ so that a unique BIN 

and PCN combination, and group 

number identifiers, will be assigned and 

used on enrollee identification cards; 

removing the comma after ‘‘(BIN)’’ and 

replacing it with ‘‘and’’ for grammatical 

correctness; and replacing ‘‘beneficiary’’ 

with ‘‘enrollee’’ to accurately 

acknowledge that enrollee identification 

cards are provided to a Medicaid 

beneficiary enrolled in a managed care 

plan in a given managed care program. 

Furthermore, we are revising the 

applicability date for this provision to 

be the first rating period for contracts 

with MCOs, PIHPs, and PAHPs 

beginning on or after 1 year following 

the effective date of the final rule. To 

accomplish this, we are removing the 

proposed applicability date from 

§ 438.3(s)(7) and establishing § 438.3(w) 

with this applicability date. 

2. Drug Cost Transparency in Medicaid 

Managed Care Contracts 

In the proposed rule, we included a 

provision that would require that the 

contracts between States and MCOs, 

PIHPs, and PAHPs that provide 

coverage of CODs require these managed 

care plans to structure contracts with 

any subcontractor, which may include 

for the delivery or administration of 

CODs, in a manner that ensures drug 

cost spending transparency by requiring 

the subcontractor to report separately 

certain expenses and costs. As part of 

our proposal, we noted that these 

subcontractors may include PBMs. 

As stated in the preamble of the 

proposed rule, PBMs are intermediaries 

in the relationship between the 

managed care plans and the health care 

(medical and pharmacy) providers that 

provide CODs. That is, PBMs have 

contracts with both the managed care 

plans to administer the pharmacy 

benefit, as well as with the health care 

providers that administer or dispense 

drugs to patients that are enrolled in the 

managed care plan. Among other tasks 

in the marketplace, a PBM may be 

responsible for developing a drug 

formulary, collecting manufacturer 

rebates on behalf of the managed care 

plan, performing Drug Utilization 

Review (DUR), adjudicating claims, and 

contracting with retail community 

pharmacies and other health care 

providers to develop a network of 

providers that can dispense or 

administer drugs to managed care 

enrolled patients. 

PBMs also may negotiate pharmacy 

reimbursement rates on behalf of the 

various health plans, including 

Medicaid managed care plans with 

which it contracts, to pay the pharmacy 

and other health care providers for the 

CODs that are dispensed or 

administered. In most cases, the 

pharmacy reimbursement rates are 

specified in the contract between the 

PBM and the pharmacy providers, and 

these include pharmacy reimbursement 

rates for brand name and generic 

prescription drugs, as well as the 

dispensing fees paid to dispense or 

administer the prescription drug. In 

addition, there are also administrative 

fees paid to the PBM by the managed 

care plans for its administration and 

operation of the pharmacy benefit. 

The margin between the amount 

charged by the PBM to a managed care 

plan for a COD and the amount paid by 

the PBM to a pharmacy provider is 

referred to as the ‘‘spread,’’ and this 

construct is referred to as ‘‘spread 

pricing.’’ A detailed description and 

example of how spread pricing works 

and how it may affect Medicaid 

spending for prescription drugs was 

included in the proposed rule at 88 FR 

34250 thru 34251. The amount of this 

margin or ‘‘spread’’ may only be known 

by the PBM, unless a State Medicaid 

program or managed care plan 

specifically requires the disclosure of 

the charge and payment data that are 

used to make these calculations. This 

information deficit results in a lack of 

accountability and transparency to the 

Medicaid managed care plans, and thus 

the Medicaid program, which we 

believe is contrary to proper and 

efficient operation of the State Medicaid 

program, and potentially creates 


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conflicts of interest in connection with 

payment for CODs. Spread pricing can 

increase Medicaid pharmacy program 

costs, reduce efficient operation of the 

Medicaid program, and reduce the 

transparency of State Medicaid 

expenditures within managed care 

programs. 

We further noted in the preamble to 

the proposed rule that section 

1902(a)(4)(A) of the Act requires that the 

State plan for medical assistance 

comply with methods of administration 

that are found by the Secretary to be 

necessary for the proper and efficient 

operation of the State plan. Greater 

transparency and accountability by 

Medicaid managed care plans (and their 

subcontractors) to the States for how 

Medicaid benefits are paid compared to 

how administrative fees are paid, are 

both necessary for efficient and proper 

operation of Medicaid programs. 

Moreover, this lack of transparency 

makes it more difficult for States and 

Medicaid-managed care plans to ensure 

that the plan’s Medical Loss Ratio 

(MLR) calculation is limited to the true 

medical costs associated with the 

provision of CODs. We noted that MLR 

calculations are used as part of 

capitation rate development. Capitation 

rates are paid to Medicaid managed care 

plans; thus, their accuracy is critical in 

assuring that Medicaid payments are 

reasonable and appropriate. We further 

noted that managed care capitation rates 

must (1) be developed such that the 

plan would reasonably achieve an 85 

percent MLR (§ 438.4(b)(9)) and (2) are 

developed using past MLR information 

for the plan (§ 438.5(b)(5)). In addition 

to other standards outlined in §§ 438.4 

through 438.7, requirements related to 

accurate MLRs are key to ensuring that 

Medicaid managed care capitation rates 

are actuarially sound. In addition, 

Medicaid managed care plans may need 

to pay remittances to States should they 

not achieve a specific MLR target when 

a remittance is required by a State. 

Thus, the accuracy of MLR calculation 

is important to conserving Medicaid 

funds. 

We also pointed out that CMS issued 

a Center for Medicaid & CHIP Services 

(CMCS) Informational Bulletin on May 

15, 2019, for States and Medicaid 

managed care plans, titled ‘‘Medicaid 

Loss Ratio (MLR) Requirements Related 

to Third Party Vendors’’ (‘‘2019 CIB’’) 

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

default/files/Federal-Policy-Guidance/ 

Downloads/cib051519.pdf), specifying 

MLR data collection requirements when 

a managed care plan uses subcontractors 

for plan activities. The 2019 CIB 

provided additional guidance, including 

an example regarding the MLR data 

collection requirements when third 

party vendors, such as PBMs, are 

involved. However, while the 2019 CIB 

uses PBM spread pricing as a specific 

example, there was nothing currently in 

Federal regulation that specifically 

detailed contract requirements that 

(non-claim) administrative costs, fees, or 

expenses of a managed care plan’s 

subcontractor should not be counted as 

incurred claims for purposes of the 

managed care plan’s MLR calculation. 

In addition, the preamble to the 

proposed rule discussed that the 

Medicaid managed care regulation at 

§ 438.230(c)(1) requires that certain 

agreements are to be included in 

subcontracts, including that 

subcontractors agree to perform the 

delegated activities and reporting 

responsibilities in compliance with the 

managed care plan’s contract 

obligations, and that the reporting 

standards at § 438.8(k)(3) specify that 

managed care plans must require any 

third-party vendor providing claims 

adjudication activities to provide all 

underlying data associated with MLR 

calculation and reporting. The 2019 CIB 

explained how these regulatory 

obligations require that all 

subcontractors that administer claims 

for the managed care plan must report 

the incurred claims, expenditures for 

activities that improve health care 

quality, and information about 

mandatory deductions or exclusions 

from incurred claims (overpayment 

recoveries, rebates, other non-claims 

costs, etc.) to the managed care plan and 

that the requirements and definitions in 

§ 438.8 for these categories of costs and 

expenditures must be applied to the 

required reporting. 

For these reasons, we proposed to 

amend § 438.3(s) to require MCOs, 

PIHPs, and PAHPs that provide 

coverage of CODs to structure any 

contract with any subcontractor for the 

delivery or administration of the COD 

benefit to require the subcontractor to 

report separately the amounts related to: 

(i) The incurred claims described in 

§ 438.8(e)(2) such as reimbursement for 

the covered outpatient drug, payments 

for other patients services, and the fees 

paid to providers or pharmacies for 

dispensing or administering a covered 

outpatient drug; and (ii) Administrative 

costs, fees and expenses of the 

subcontractor. We noted that this 

proposal will not change the 

applicability of the 2019 CIB to PBM 

subcontractors or to other 

subcontracting arrangements used by a 

Medicaid managed care plan; the 2019 

CIB remains CMS’ position on how 

§§ 438.8 and 438.230 apply. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Many commenters 

supported the requirement that 

managed care plans separately report 

the amounts for incurred claims for 

CODs and not include administrative 

costs in the MLR numerator, and by 

doing so, this new requirement would 

provide transparency to help identify 

PBM spread pricing practices that 

potentially lead to pharmacies being 

underpaid for their services. Other 

commenters, while supporting the 

proposal, questioned why spread 

pricing is not entirely prohibited. 

Response: We appreciate commenters’ 

support regarding the regulation as 

proposed. We note that CMS does not 

have the authority under Federal 

Medicaid statute to prohibit a PBM’s 

practice of spread pricing. However, we 

believe this regulation, once final, will 

provide greater transparency to State 

Medicaid agencies and managed care 

plans regarding how the PBMs are 

spending the payments that are made to 

them by the Medicaid managed care 

plan to administer the Medicaid 

prescription drug benefit. We believe 

this information will help to inform the 

State’s decision-making relating to the 

administration of the prescription drug 

benefit. It will also help the Medicaid 

managed care plans have more accurate 

data to calculate their MLRs, as well as 

ensure that States can accurately 

develop capitation rates. Finally, it will 

help States and managed care plans 

ensure that PBMs are being 

appropriately compensated for their 

services by requiring that the 

subcontractors report separately 

incurred claims for CODs and 

administrative fees, costs, and expenses 

in sufficient detail and the level of 

detail must be no less than the reporting 

requirements in 42 CFR 438.8(k). 

Comment: With respect to CMS’ 

proposal to separate the amounts related 

to incurred claims (for example, COD 

reimbursement and dispensing fees) 

from a PBM’s administrative fees, 

commenters urged CMS to also consider 

downstream impacts in the supply 

chain. The commenters indicated that to 

support robust pharmacy market 

competition and lower health care costs 

for beneficiaries, CMS must ensure that 

pharmacies and other health care 

providers’ proprietary information, such 

as the pharmacy reimbursement (dollar 

amount) is not disclosed and cannot be 

traced back to an individual pharmacy. 

The commenters also indicated that 

they understand the difficulty in 

balancing both promoting market 


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competition and striving for greater 

transparency in the marketplace; 

however, these commenters noted this 

balance could be achieved with 

transparent accountability measures and 

comprehensive PBM reform. 

Response: We continue to believe this 

requirement will not deter market 

competition because it does not require 

public disclosure of provider-specific 

proprietary information. Instead, 

§ 438.3(s)(8) will require that the 

managed care plans contract with the 

subcontractor will require the 

subcontractor report separately incurred 

claims and administrative costs, fees 

and expenses of the subcontractor 

necessary for the managed care plan’s 

reporting of the MLR consistent with the 

requirements at § 438.8(e)(2). The 

reporting must be in sufficient detail to 

allow a managed care plan to accurately 

incorporate the expenditures associated 

with the subcontractor’s activities into 

the managed care plan’s overall MLR 

calculation. As provided in the 2019 

CIB, the level of detail must be no less 

than the reporting requirements in 42 

CFR 438.8(k), but may need to be more 

if necessary to accurately calculate an 

overall MLR or to comply with any 

additional reporting requirements 

imposed by the State in its contract with 

the managed care plan. We note that 

there is nothing in the regulation that 

prevents the subcontractor from 

negotiating terms limiting the 

identification of provider-specific 

expenditures in the contract with the 

managed care plan, as long as those 

terms are consistent with the 

requirements of this final rule and other 

Federal contract requirements in 

regulation at 42 CFR part 438. 

Comment: Many commenters 

requested that CMS implement Federal 

requirements on PBMs’ arrangements 

with pharmacies rather than just focus 

on contracting requirements between 

the managed care plans and PBMs. The 

commenters encouraged CMS to 

consider issuing rulemaking that would 

enhance pharmacy network adequacy, 

ensure reasonable reimbursement for 

pharmacies, require certain payment 

models for managed care plans that 

cover CODs, and promote payment 

parity between PBM affiliated and nonaffiliated pharmacies in Medicaid 

managed care. Other commenters 

suggested including data quality 

controls, alignment with other payer 

models, and limitations of 

reimbursements to non-PBM affiliates. 

Specifically, commenters requested that 

CMS revise § 438.3(s)(8) to: 

• Require managed care plans 

eliminate spread pricing, such as by 

requiring the plans to utilize certain 

payment models with their PBM 

subcontractors which dictate how much 

the PBM is paid for their administrative 

activities and require specific payment 

models of how much providers and 

pharmacies are paid. The commenter 

also pointed to its support of current 

proposed Federal legislation (S. 1038, 

Drug Price Transparency in Medicaid 

Act of 2023/HR 3561, the PATIENT Act) 

that includes similar proposals that 

would ban spread pricing in Medicaid. 

• Require that managed care plans’ 

contracts with their subcontracted PBMs 

require reimbursement for all innetwork pharmacies in the managed 

care program based on a transparent 

benchmark of National Average Drug 

Acquisition Cost (NADAC), or WAC 

when there is not a NADAC price, for 

a Medicaid COD with a commensurate 

dispensing fee comparable to the State’s 

Medicaid survey-based fee-for-service 

PDF as a final payment, absent written 

proof of fraud. The commenter also 

suggested that CMS should require that 

the managed care plan only include 

these claim cost payments paid by the 

PBM to the pharmacy for the managed 

care plan’s reported MLR to a State 

Medicaid program. 

• Prohibit managed care plans and 

their subcontracted PBMs from 

reimbursing non-PBM affiliated 

pharmacies less than PBM-owned or 

PBM-affiliated pharmacies. 

The commenters expressed their 

belief that by adding these provisions to 

the proposed regulations, CMS would 

take important steps to eliminate the 

managed care PBM practices that the 

commenter indicates have led to nearly 

$1 billion in Medicaid fraud settlements 

by 17 States against managed care plans 

for overbilling Medicaid programs for 

managed care prescription benefits. 

Response: We are aware of the 

settlements between PBMs and States, 

and the potential that such spread 

pricing arrangements will result in 

overbilling Medicaid. We believe that 

§ 438.3(s)(8), which will require the 

subcontractor report to the managed 

care plan separately incurred claims (for 

example, covered outpatient drug 

reimbursement) from administrative 

costs, fees, and expenses for purposes of 

calculating the managed care plan’s 

MLR, will likely impact the practice of 

PBM spread pricing. That is, greater 

transparency to the States of how 

prescription expenditures are being 

allocated by the PBMs contracted with 

the Medicaid managed care plans to 

provide pharmacy benefits may reduce 

the likelihood that the PBM will engage 

in spread pricing. 

Furthermore, we are aware of actions 

taken by individual States at their 

option to end or limit impact of PBM 

spread pricing, including in Medicaid. 

However, as noted in the preamble, we 

do not believe we have Federal 

authority to prohibit spread pricing. 

Nonetheless, we believe that this final 

rule will provide greater transparency to 

State Medicaid agencies and Medicaid 

managed care plans to help inform the 

State’s decision-making relating to the 

administration of the prescription drug 

benefit and improving accuracy of 

plans’ MLR calculations. 

With regards to pharmacy 

reimbursement, the adequacy of 

reimbursement by managed care plans 

or their subcontractors to their network 

or non-network pharmacies or providers 

is out of scope of this final rule. 

Furthermore, CMS does not have 

authority to impose on Medicaid 

managed care plans the State plan 

requirements at § 447.518, which 

require State Medicaid FFS payment 

methodologies for retail community 

pharmacies be in accordance with the 

definition of actual acquisition costs at 

§ 447.502, including requiring the use of 

an Actual Acquisition Cost (AAC) 

benchmark in setting prescription drug 

reimbursement at the retail level. These 

regulations do not apply to Medicaid 

managed care plan payments to 

pharmacies or providers for CODs. 

We note that if a State or CMS finds 

that a Medicaid managed care plan does 

not have a sufficient network of 

pharmacies or providers to ensure 

enrollee access to prescription drug 

benefits, the States and CMS can engage 

with the Medicaid managed care plans 

on whether the reimbursement to 

pharmacies and/or providers for 

prescription drugs is adequate to attract 

pharmacies/providers in their network 

and ensure Medicaid beneficiaries have 

access to the Medicaid prescription drug 

benefit. We remind States of their 

obligation to develop and enforce a 

quantitative network adequacy standard 

for pharmacies at § 438.68(b)(1)(vi). 

Comment: One commenter suggested 

that CMS urge PBMs to disclose and 

document their profit usage and 

accounting for when profit is used to 

augment beneficiaries’ drug access. This 

same commenter questioned CMS’ 

position on PBMs charging insurers 

higher than what they pay pharmacies, 

and recommended CMS investigate the 

efficacy of using PBMs for negotiating 

reduced drug prices. 

Response: We may consider the 

commenter’s concerns in future policy 

development. Otherwise, the use of a 

PBM’s profits and investigation of PBM 

practices are not a subject of this final 

rule. 


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Comment: Several commenters 

expressed their belief that increasing the 

level and detail of reporting by PBMs is 

a good first step in increasing 

transparency; however, they noted more 

could be done to protect the intent and 

the efficacy of the 340B Program and its 

eligible covered entities by not allowing 

PBMs to use discriminatory practices, 

such as PBM payment cuts, that harm 

hospitals and community health centers 

that are 340B covered entities and 

possibly jeopardize patient access to 

340B covered entities and contract 

pharmacies. The commenters indicated 

that this would allow the savings 

generated through the 340B Program to 

be passed along to the PBM to increase 

their profits. The commenters supported 

provisions addressing the contracting 

between PBMs and managed care plans 

but do not support any policies that will 

impact a pharmacy’s reimbursement. 

Response: The efficacy of the 340B 

Program and any discriminatory 

practices of PBMs is out of scope of this 

final rule. Furthermore, as stated earlier, 

the adequacy of reimbursement by a 

plan (via its PBM) to a managed care 

plan’s network or non-network 

pharmacy, which could be a covered 

entity, is also not a subject of this final 

rule, nor is the effect of PBM practices 

on 340B entities and use of 340B 

savings. 

Comment: Several commenters 

supported the proposed changes, 

including the information 

subcontractors of managed care plans 

need to separately identify (separately 

identify incurred claims from 

administrative costs, fees, or expenses) 

and provide to managed care plans, but 

requested that CMS develop detailed 

guidance on the specific cost elements 

to be reported and a reporting template 

to ensure standardization and ease of 

adoption. They indicated that it would 

be helpful for CMS to indicate the 

specific parameters that would be 

included in this requirement to provide 

greater transparency into PBM and 

pharmacy services administrative 

organizations (PSAOs) and any other 

subcontractor that has incurred claims 

on behalf of the managed care plan 

associated with covered outpatient drug 

coverage. 

Response: We appreciate the 

commenters’ request for more detailed 

guidance. We will evaluate if additional 

guidance is needed as part of 

implementation efforts for this 

requirement and will take these 

suggestions into consideration as part of 

that evaluation. 

Comment: One commenter indicated 

that its State currently requires its 

managed care plans to produce reports 

with claim level data on the payment 

made to the PBM by its managed care 

plans and the amount of payment the 

PBM has paid to the pharmacy. In 

addition to claim level data, the 

commenter indicated that this State 

requires its managed care plans to report 

on all payments, including 

administrative fees, to and from the 

PBM, managed care plan, and 

pharmacies at an aggregate level. The 

commenter believes additional Federal 

requirements would strengthen States’ 

abilities to secure data around drug 

costs. Another commenter further 

pointed to the National Academy of 

State Health Policy (NASHP) website, in 

which NASHP analyzed PBM contracts 

in a subset of States and developed 

model contract language to address the 

lack of transparency and promote costsaving incentives in typical PBM 

contracts. 

Response: We appreciate the 

commenter’s support for finalizing 

§ 438.3(s)(8). We do not intend to 

further revise the Federal requirements 

in § 438.3(s)(8) at this time. We 

encourage States to assess if they wish 

to impose additional reporting 

requirements on plans or their 

subcontractors to facilitate State 

priorities such as those on transparency 

and payment, or develop model contract 

language for plans to utilize with their 

subcontractors. 

Comment: One commenter suggested 

that CMS consider alignment with other 

payer models for drug cost data 

collection, such as the Prescription Drug 

Data Collection (RxDC) required by the 

Consolidated Appropriations Act of 

2021. The commenter noted that 

alignment would facilitate the ability of 

managed care plans to provide cost 

transparency, minimize burden, and 

improve the ability of CMS to compare 

drug costs across delivery systems. 

Response: We appreciate the 

commenter’s suggestion that we align 

Medicaid data collection efforts from 

payers with other data collection 

programs, such as the RxDC, especially 

for purposes of transparency. However, 

the data collection required under this 

provision is distinct from the RxDC 

program and serves to ensure a 

Medicaid managed care plan has the 

data it needs from its subcontractors to 

accurately calculate and report its MLR. 

Comment: A few commenters 

requested clarification regarding the 

applicability date for § 438.3(s)(8) and 

urged CMS to grant managed care plans 

and their subcontractors sufficient time, 

such as 6 months or more, to allow for 

necessary operational, system, and 

contracting changes. 

Response: The applicability date for 

§ 438.3(s)(8) as finalized is no later than 

the State’s first rating period for 

contracts with MCOs, PIHPs, and 

PAHPs beginning on or after 1 year from 

the effective date of this final rule. As 

part of this final rule, we have added 

§ 438.3(w) to finalize this applicability 

date. 

Comment: One commenter requested 

that spread pricing information be made 

public where possible, stating it is vital 

to the public’s interest to understand 

what the cost of PBMs are to Medicaid 

and enrollees. 

Response: We assume that the 

commenter is requesting that CMS and/ 

or States publicly publish the 

information collected by the managed 

care plans from PBMs that distinguish 

the PBM’s payment for the drug and the 

administration fee and how much the 

managed care plan paid the PBM for 

such services. This final rule does not 

modify the elements States are required 

to include in their MLR summary 

reports to CMS under § 438.74; 

therefore, CMS will not have routine 

access to PBM payment information that 

is provided by PBMs to managed care 

plans and cannot release it to the public. 

States may consider additional steps, 

such as what level of data they wish to 

compile from plans and their 

subcontractors, in addition to those 

required for reporting in accordance 

with § 438.74 and associated 

transparency on the State’s public 

website. 

Comment: A few commenters 

acknowledged that, making PBMs break 

out their costs would give State 

Medicaid programs a better sense of 

whether spread pricing is occurring, but 

commenters suggested a more effective 

approach would be to prohibit spread 

pricing in Medicaid managed care. They 

noted that the Congress is currently 

considering numerous bills related to 

PBM practices and could include a 

prohibition of spread pricing in 

Medicaid managed care as part of those 

efforts. 

Response: We appreciate the support 

for this final rule. As noted previously, 

we do not have the authority to 

completely prohibit these PBM 

practices. 

Comment: One commenter requested 

clarification on the separate 

identification of a COD, if a COD is 

deemed to be eligible for a MDRP rebate. 

The commenter supported a 

requirement that if a Medicaid managed 

care plan contracts with any 

subcontractor for the delivery or 

administration of CODs, the managed 

care plan must require the subcontractor 

to separately identify CODs, even if the 


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CODs are reimbursed as a bundled 

payment. 

Response: As specified in 

§ 438.3(s)(8), we are finalizing a 

requirement for Medicaid MCOs, PIHPs, 

and PAHPs that provide coverage of 

CODs to require any subcontractor for 

the delivery or administration of the 

COD benefit to report separately the 

amounts related to the incurred claims 

described in § 438.8(e)(2), such as 

reimbursement for the CODs, from the 

administrative costs, fees, and expenses 

of the subcontractor. The separate 

reporting requirement for the delivery or 

administration of the covered outpatient 

drug benefit under § 438.3(s)(8) is not 

limited to those instances when the 

COD benefit is paid separately as a 

claim; the separate reporting 

requirement applies regardless of the 

COD benefit reimbursement 

methodology (for example, bundled 

payment for a specific service). 

After consideration of public 

comments on this provision, we are 

finalizing § 438.3(s) with some changes 

to the proposed regulatory text. While 

we discussed in the preamble of the 

proposed rule that this would apply to 

MCOs, PIHPs, and PAHPs, we did not 

include the phrase ‘‘MCO, PIHP, or 

PAHP’’ in the regulatory text. Thus, we 

will modify § 438.3(s)(8) by adding at 

the beginning of the paragraph the 

phrase ‘‘The MCO, PIHP, or PAHP’’ to 

conform with the other paragraphs in 

§ 438.3(s), inserting ‘‘must’’ to replace 

‘‘to’’ for additional clarity, and inserting 

‘‘to the MCO, PIHP, or PAHP’’ for clarity 

on the entity that the subcontractor 

reports the required information to. We 

also are adding § 438.3(w) to include an 

applicability date for the requirements 

of paragraphs (s)(7) and (s)(8), which 

will be the first rating period for 

contracts with MCOs, PIHPs, or PAHPs 

beginning on or after 1 year following 

November 19, 2024. 

C. MDRP Administrative and Program 

Integrity Changes 

1. Definitions (§ 447.502) 

a. Modification to the Definition of 

Covered Outpatient Drug (§ 447.502) 

In the proposed rule, we proposed to 

modify the definition of a COD. We 

noted as background that sections 

1927(k)(2) and (3) of the Act provide a 

definition of the term ‘‘covered 

outpatient drug’’ (COD) and a limiting 

definition, which excludes certain 

drugs, biological products, and insulin 

provided as part of, or as incident to and 

in the same setting as, enumerated 

services and settings from the definition 

of COD. This exclusion is subject to a 

parenthetical, however, which limits the 

exclusion to when payment may be 

made as part of payment for the 

enumerated service or setting, and not 

as direct reimbursement for the drug. In 

other words, a product that would 

otherwise qualify as a COD, is excluded 

from the definition if it is administered 

in certain settings and not directly 

reimbursed. 

We also noted that in the 2016 COD 

final rule, we finalized a regulatory 

definition of COD in § 447.502 that 

substantially mirrors the statutory 

definition. Consistent with section 

1927(k)(3) of the Act, the regulatory 

definition includes a limiting definition 

in paragraph (2) that excludes from the 

definition of COD any drug, biological 

product, or insulin provided as part of 

or incident to and in the same setting as 

anyone in a list of services, and for 

which payment may be made as part of 

that service instead of as a direct 

reimbursement for the drug. 

We noted in the proposed rule that, 

over the years, we have received 

questions about when a payment is 

considered to be a direct reimbursement 

for a drug, and whether identifying a 

drug separately on a claim for payment 

may qualify as direct reimbursement for 

a drug. Such situations would render 

the drug eligible for rebates under 

section 1927 of the Act as a COD, or in 

other words, the limiting definition 

exclusion would be inapplicable in 

certain circumstances. We had proposed 

that, if a drug and its cost can be 

separately identified on a bundled claim 

for payment, and the identified amount 

attributable to the drug is made solely 

for the drug (and no other services), it 

can be considered direct reimbursement 

for the drug. Therefore, we indicated 

that direct reimbursement may be 

reimbursement for a drug alone, or 

reimbursement for a drug plus the 

service, in one inclusive payment if the 

drug plus the itemized cost of the drug 

is separately identified on the claim. 

The payment for the drug is not 

required to be a distinct, separate 

payment for such payment to be 

considered direct reimbursement. 

Specifically, we proposed to amend 

the regulatory definition of the term 

covered outpatient drug at § 447.502 to 

add that direct reimbursement for the 

drug includes situations in which a 

claim for an all-inclusive payment 

identifies the drug plus the itemized 

cost of the drug. 

Additionally, to support our proposal, 

we noted that the limiting definition in 

section 1927(k)(3) of the Act includes 

the following parenthetical: ‘‘. . . (and 

for which payment may be made under 

this subchapter as part of payment for 

[certain services] and not as direct 

reimbursement for the drug).’’ The 

definition of the term covered 

outpatient drug in § 447.502 includes 

similar limiting language in a 

parenthetical at paragraph (2): ‘‘. . . 

(and for which payment may be made 

as part of that service instead of as a 

direct reimbursement for the drug).’’ We 

noted that there was no meaningful 

distinction between the statutory and 

regulatory parenthetical language for 

purposes of the MDRP, and thus, we 

proposed to make a technical change by 

modifying the regulatory language so 

that it more closely mirrors the statutory 

language. We proposed to add ‘‘payment 

for’’ after ‘‘and for which payment may 

be made as part of’’ and to delete 

‘‘instead of as a’’ in the limiting 

definition of covered outpatient drug 

and replace it with ‘‘and not as’’. 

The proposed definition would then 

read, in significant part, as ‘‘. . . (and 

for which payment may be made as part 

of payment for that service and not as 

direct reimbursement for the drug).’’ 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: We received several 

comments supporting the proposed 

definition of direct reimbursement with 

respect to the COD’s limiting definition. 

Some comments provided general 

support for the proposed definition. One 

commenter stated that the definition 

will help ensure that Medicaid 

beneficiaries with a rare disease 

continue to have access to affordable 

outpatient drugs. Another commenter 

stated that the change will help ensure 

that States receive the MDRP rebates to 

which they are entitled, allowing 

providers to make treatment decisions 

based on the individual clinical 

circumstances of a patient. One 

commenter supported the definition and 

noted that current claims processing 

standards support the ability of a claim 

to contain the required information so 

that rebates may be billed. One 

commenter supported the definition and 

stated they believe that the modification 

to the definition reflects our current 

policy, and they requested clarification 

to confirm that understanding. 

Response: We appreciate the support 

for the modification of the definition of 

a direct reimbursement as it relates to 

the definition of a COD. The 

modification to the definition was not 

intended to be a departure from current 

practice or in conflict with the current 

regulation or statute. Rather, the 

modification was intended to address 

the fact that States are now using newer 

reimbursement methodologies where it 

is not entirely clear whether drugs 


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reimbursed through that new 

methodology are CODs. As discussed 

subsequently, we are also adding 

clarifying language to ensure that our 

intention is clear that the definition 

does not inadvertently include drugs 

that do in fact meet the statutory 

limiting definition of COD. 

Comment: We received several 

comments that are outside the scope of 

this rule. One commenter stated that the 

modified definition of COD would affect 

the covered entities that participate 

under the HRSA 340B Program because 

they use our definition of COD to 

determine if a drug is subject to 340B 

pricing. One commenter stated that 

CMS fails to convey how medical 

research and development will be 

protected with the proposed revisions. 

A few commenters noted that the 

modified definition of COD would 

increase the number of CODs subject to 

rebates which may make it difficult for 

manufacturers to continue to offer their 

drugs in Medicaid. 

Response: Because these 340B issues 

are outside the scope of this rule, we are 

not addressing them. We appreciate the 

commenters’ concern regarding the 

modification of the definition of COD 

and the increased number of CODs 

subject to rebates. While we do not 

believe this clarification to the 

definition will result in a significant 

change in the number of CODs, it may 

increase the number of instances where 

a COD may qualify for rebates. With 

respect to impact on research and 

development, this proposal will clarify 

for States when a drug is a COD and 

thus subject to rebates in some 

instances, and thus may result in States 

collecting rebates in circumstances 

where they are not currently collecting 

any rebates. As a result, States may take 

these clarifications into account when 

determining coverage and 

reimbursement policies for particular 

drugs. The impact of these clarifications 

may result in States having a net 

reduction in cost for these drugs, which 

may increase access to these drugs, and 

in turn, support manufacturers’ research 

and development efforts. CMS does not 

believe that the clarification of the 

definition of a COD in this rule 

indicates that scientific drug 

development is not valued or that the 

definition will disincentivize the 

scientific development. The United 

States pharmaceutical market is the 

largest in the world, with a strong 

record of fostering innovation, and 

Federal health care programs are large 

payers for medications in the United 

States, supporting incentives for 

manufacturers to continue to develop 

innovative medicines and make drugs 

available in the Medicaid program. 

Comment: We received many 

comments stating that our proposed 

clarification of the term ‘‘direct 

reimbursement’’ conflicts with the 

language of the statute. Commenters 

also stated that the proposed revision 

would represent a significant and 

impermissible change to the meaning of 

the limiting language in the COD 

definition and stated that it would 

render language in the statute 

unnecessary. Commenters pointed to 

legislative history, assertions made by 

HHS in litigation that ‘‘a drug is not a 

covered outpatient drug if it is provided, 

and paid for, as part of a bundled 

service,’’ language in the 2016 COD final 

rule, and responses in an FAQ 

published under the 2016 COD final 

rule to support their position that CMS 

historically considered that a drug was 

not a COD unless the drug was 

separately reimbursed. One commenter 

cited the following language from the 

2016 COD final rule to support their 

position: ‘‘a drug which is billed as part 

of a bundled service with, and provided 

as part of or incident to and in the same 

setting as the services’’ [will only 

qualify as] a COD if ‘‘the State 

authorizes and provides a direct 

payment for the drug, consistent with 

the applicable State plan, separately 

from the service.’’ 

Response: Upon review of these 

comments, we are clarifying for States 

the situations in which they will be able 

to bill for a rebate for a COD that is 

directly reimbursed as part of a bundled 

or inclusive payment. Specifically, we 

are clarifying the term ‘‘direct 

reimbursement’’ as we agree that the 

proposed regulatory definition may not 

have clearly identified those situations 

that will qualify as direct 

reimbursement. In this final rule, we are 

adding language to the regulatory 

definition to indicate that direct 

reimbursement includes reimbursement 

for a drug that is part of an inclusive 

payment when the inclusive payment 

includes an amount attributable to the 

drug, the number of units of the drug 

that were dispensed or administered to 

the patient, and the amount paid that is 

attributable to the drug is based on a 

reimbursement methodology that is 

included in the applicable section of the 

State plan. 

Comment: Several commenters 

disagreed with CMS’ assertion that the 

proposed modification to the definition 

of COD is a clarification of existing 

policy on the application of the limiting 

definition. They stated that rather than 

a clarification, they view the 

modification as a policy change with no 

presented rationale. Commenters also 

stated that CMS’ proposal is a departure 

from the agency’s longstanding policy 

that no Medicaid rebate liability 

attaches to units reimbursed via 

bundled payments. Commenters also 

stated that our definition marks a 

significant and unacknowledged 

departure from the agency’s 

longstanding approach to manufacturer 

rebate liability. A commenter mentioned 

that a basic requirement of the 

Administrative Procedure Act is that an 

agency must acknowledge that ‘‘it is in 

fact changing its position’’ and provide 

good reasons for any change in policy. 

They stated that CMS failed even to 

acknowledge its changing position and 

was, therefore, acting in an arbitrary and 

capricious manner. A few other 

commenters referenced language in the 

preamble to the 2016 COD final rule, 

when CMS previously stated, ‘‘if the 

drug is provided as part of a bundled 

service and not separately reimbursed, 

then the drug does not qualify as a 

[covered outpatient drug], in accordance 

with section 1927(k)(3) of the Act and 

is not subject to rebates.’’ 

Response: Our intent in the proposed 

rule was to provide clarification 

regarding when a payment represents 

direct reimbursement for a drug. 

Essentially, we were clarifying that, as 

used in the quoted language, ‘‘not 

separately reimbursed’’ in the context of 

bundled rates means not separately 

identified or itemized, with an amount 

associated with payment for the drug. 

Based on the comments, we agree that 

our proposed modification to the 

definition could be further clarified. In 

the past we have stated that no rebate 

liability attaches to drugs that are paid 

for as part of bundled payments. As just 

noted, this was intended to address 

situations in which an amount paid for 

a COD is not identified or itemized. As 

noted in the preamble to the proposed 

rule, interested parties have requested 

that we define situations in which 

rebates can be billed for drugs that are 

part of inclusive payments if the 

quantity of drug dispensed or 

administered can be identified. As 

noted in the response to previous 

comments, we are modifying the 

definition of direct reimbursement in 

this final rule to make it clear that, for 

rebates to be billed, the inclusive 

payment must include an amount 

directly attributable to the drug, and the 

amount paid that is attributable to the 

drug is based on a reimbursement 

methodology that is included in the 

applicable section of the State plan. 

Comment: We received some 

comments indicating that the proposed 

change to the definition of COD would 


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nullify the distinction between direct 

reimbursement and reimbursement 

made as part of a bundled payment. 

Commenters stated that ‘‘direct 

reimbursement’’ cannot be construed to 

mean ‘‘separately identified’’ without 

there being a distinct payment for the 

drug. Commenters also indicated that 

CMS failed to acknowledge that where 

a drug has been paid for as part of an 

indivisible payment for the drug and its 

associated services, Medicaid, by 

definition, has not directly reimbursed 

for the drug, and there is no ‘‘direct’’ 

throughline between the reimbursement 

amount and the payment associated 

with any one of the bundled items or 

services. Some commenters also stated 

that the proposed change ignores what 

they consider to be a reasonable 

interpretation of direct reimbursement. 

Response: We agree that the proposed 

revision to the definition of COD 

regarding direct reimbursement did not 

adequately reflect that the amount of 

reimbursement for the drug should be 

tied to the State’s approved 

reimbursement methodology for that 

drug. We have therefore added language 

to the definition in this final rule to 

indicate that in order for the payment 

for the drug to be treated as direct 

reimbursement, the payment 

methodology for the inclusive payment 

must identify an amount directly 

attributable to the drug, such that the 

amount paid is based on a 

reimbursement methodology that is 

included in the applicable section of the 

State plan. 

Comment: We received a few 

comments that because our modified 

definition of COD provides that drugs 

administered in an inpatient setting 

could be included in the definition of 

‘‘covered outpatient drug,’’ we give no 

meaning to the word ‘‘outpatient’’ 

contained within the term. 

Response: The term ‘‘covered 

outpatient drug’’ is a statutory term of 

art. The limiting definition in section 

1927(k)(3) states that the term COD does 

not include any drug provided as part 

of, or as incident to and in the same 

setting as ‘‘inpatient hospital services,’’ 

among others, and for which payment is 

not made as direct reimbursement for 

the drug. If the Congress had intended 

for the statutory term of ‘‘COD’’ to be 

limited to the outpatient setting only, 

the limiting definition would be 

superfluous as applied to being 

included in inpatient hospital services. 

Because statutory interpretation 

principles hold that an agency should 

not construe a statute in a manner that 

renders a provision to have no effect, we 

disagree that the term COD is limited to 

drugs dispensed or administered in an 

outpatient setting. Based on the plain 

text of 1927(k)(3), the term COD 

excludes a drug provided in the 

inpatient hospital setting only if the 

drug is provided as part of or as incident 

to and in the same setting as inpatient 

hospital services and for which payment 

is made as part of such services and not 

as direct reimbursement for the drug. 

We proposed to amend the regulatory 

definition of COD in a manner 

consistent with the statutory definition 

of this term of art to provide greater 

specificity as to when a drug provided 

in the inpatient setting is subject to the 

limiting definition and does not qualify 

as a COD. 

Comment: A commenter noted that 

the statute focuses on the manner of 

payment, not the manner in which the 

provider’s costs are reflected on the 

claim, and that our proposed definition 

was only focusing on how the claim was 

submitted. 

Response: We agree that the definition 

should include language about the 

manner of payment, which we 

understand to mean how the claim is 

reimbursed, and not only based on the 

information submitted on the claim. We 

have therefore revised the proposed 

definition to include language about the 

manner of payment, including that the 

payment methodology for the inclusive 

payment must include an amount 

directly attributable to the drug, such 

that the amount paid is based on a 

reimbursement methodology that is 

included in the applicable section of the 

State plan. 

Comment: Several commenters noted 

that when payments for new and 

innovative therapies (cell and gene 

therapies, for example) are reimbursed 

in a payment that is bundled with a 

service (for example, under the 

Diagnosis-Related Group (DRG) system), 

the reimbursement is often insufficient 

for the drug and potentially results in 

lack of patient access to these new 

therapies. The commenters noted that 

conversely, some States are reimbursing 

the hospital separately for their 

acquisition cost of certain new and 

innovative drugs from their inpatient 

services associated with administering 

the drug, and such methods of direct 

reimbursement are adequately 

reimbursing providers/hospitals and 

encouraging patient access. 

Response: We note that section 

1902(a)(30)(A) of the Act requires States 

to ensure that ‘‘payments are consistent 

with efficiency, economy, and quality of 

care and are sufficient to enlist enough 

providers so that care and services are 

available under the plan at least to the 

extent that such care and services are 

available to the general population in 

the geographic area.’’ The payment 

methodology for a COD must be 

identified in the State Plan and meet the 

foregoing standard. Some States already 

have approved methodologies outlined 

in their State plan that results in the 

ability for the State to collect rebates on 

some inpatient drugs. If a State plan 

does not address a distinct 

reimbursement methodology for a drug 

included in a bundled payment, then a 

SPA would need to be submitted and 

approved that includes such 

methodology in the appropriate section 

of the State plan. 

Comment: One commenter stated that 

manufacturers have launched certain 

products assuming there would be 

limited MDRP rebates given the 

products are included in a bundled 

payment arrangement and altering this 

will lead to significant operational 

challenges, unsustainable pricing 

expectations, potential drug shortages, 

and compromised utilization within 

Medicaid. 

Response: Again, we note that our 

intent for this clarification is to help 

manufacturers and States better 

understand how the term direct 

reimbursement for a drug will be 

applied with respect to the limiting 

language within the COD definition. 

Our review of comments alerted us to 

the fact that the proposed definition, as 

originally written, may be open to 

multiple interpretations. As a result, in 

response to such comments, we have 

modified the definition in this final rule 

to be clearer about when a payment is 

a direct reimbursement for a drug. Given 

the revisions, we do not believe that the 

challenges cited by the commenter will 

occur. We also note that there are States 

whose current Medicaid reimbursement 

policies account for carved out inpatient 

drugs for separate payment. These 

payment models have been intact for 

years and we do not have evidence that 

these payment models lead to 

significant operational challenges, 

unstable pricing expectations, drug 

shortages, or compromised Medicaid 

utilization. We also intend to provide 

additional guidance to States with 

respect to how the interpretation of 

direct reimbursement may be 

operationalized so that States can 

invoice for rebates for these CODs. 

Comment: A few commenters 

expressed their concerns regarding drug 

manufacturers’ lack of access to claims 

level data for purposes of validating 

rebate invoices if CODs are merely 

identified or itemized and not 

separately reimbursed. One commenter 

stated that neither CMS nor States nor 

manufacturers have visibility into all 

payer claims to be able to ascertain how 


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bundled drugs and associated items and 

services are itemized. Manufacturers 

would have to obtain the billing 

document to verify the validity of rebate 

invoices. Another commenter stated that 

it was unclear that States would have 

the mechanism to collect such claims 

data for bundled drugs and present to 

manufacturers if requested. 

Response: Manufacturers are always 

able to work with States to verify a 

claim for a Medicaid rebate. States will 

need to determine how they instruct 

their providers and managed care plans 

to identify for rebate billing purposes 

those inclusive payment claims where 

direct reimbursement is being made for 

a COD. This will allow States to include 

the COD in the rebate billings, as well 

as identify for Medicaid managed care 

plans such claims that they will have to 

report to the States for rebate billings. 

For States that choose to reimburse 

these drugs separately, the State will 

have the information submitted on the 

claim identifying the drug and the 

number of dispensed or administered 

units of the drug. For States that choose 

to use a bundled reimbursement model 

that separately identifies the drug and 

takes the cost of the drug into account 

in the reimbursement as outlined in the 

methodology in the State plan, those 

States will also have sufficient 

information to identify the drug and the 

number of dispensed or administered 

units of the drug. This claim 

information will allow the State to 

provide utilization information to the 

manufacturer in order for the 

manufacturer to verify that utilization. 

Collection of the data and how it may 

be presented to manufacturers may vary 

by State or manufacturer. 

Comment: Several commenters stated 

that finalizing the COD definition as 

proposed would subject some drugs (for 

example, cell and gene therapies to new 

rebate requirements and would 

undermine efforts to offer value-based 

payment models and innovative 

payment arrangements. 

Response: All CODs, including cell 

and gene therapy drugs that are CODs 

for which the manufacturer has a rebate 

agreement, are subject to basic 

minimum Medicaid rebate 

requirements, regardless of whether 

they are provided as part of a valuebased purchasing arrangement. As noted 

previously, some States have already 

received approval for a State plan 

amendment to carve out drugs, such as 

cell and gene therapy drugs from 

inpatient hospital payment rates, and 

reimburse them separately, thus 

allowing them to collect rebates. 

Further, the Cell and Gene Therapy 

Access Model being tested by the CMS 

Innovation Center will require 

participating States to carve model cell 

& gene therapy drugs out of an inpatient 

payment bundle if the States want to 

participate in the Model so that the 

States may collect rebates on the drugs. 

With the clarification to the definition 

of direct reimbursement, as finalized in 

this rule, States may also bill for rebates 

for drugs that are provided as part of 

inclusive payments if they are itemized 

on the provider’s bill, the number of 

units dispensed are identified, and the 

drug is paid according to the State’s 

approved plan methodology for the 

drug. With these clarifications, we also 

believe that manufacturers and States 

may still pursue enhancements in 

patient access, equity, and health 

outcomes by executing VBP agreements 

and supplemental rebates for any COD 

per the State plan. 

Comment: A few commenters stated 

that the cost of a drug has not 

necessarily been included in the 

development of a bundled payment rate 

for the underlying service. One 

commenter stated that a DRG-based 

payment for a hospital inpatient stay 

does not provide reimbursement for any 

one item or service involved in the 

bundle. Instead, the commenter stated 

that bundled payment rates are meant to 

reimburse generally for the collection of 

various items and services that may or 

may not be necessary to the delivery of 

care for a specific illness, procedure, or 

condition. The commenter noted that, 

typically, when DRG rates are used to 

reimburse providers, the payment is a 

predetermined amount that does not 

change based on the cost or amount of 

a specific drug that is administered or 

dispensed to the patient. 

Response: We recognize that DRG is a 

commonly employed bundled payment 

methodology for an inpatient stay for a 

procedure or diagnosis. The modified 

definition of COD that we are finalizing 

will continue to exclude drugs from the 

definition of COD that are provided as 

part of, or as incident to and in the same 

setting, as defined in 

section1927(k)(3)(A) through (H) of the 

Act, for which payment for the drug is 

bundled and not distinguishable from 

other costs associated with that service. 

In addition, given that under a bundled 

payment, the units of a drug that were 

provided during the service are not 

identified on the bill, the State would 

not know how many units to bill for 

rebates. We modified the proposed 

regulatory definition in this final rule 

such that in order for the definition of 

direct reimbursement to be met, the 

number of units administered to the 

patient must be identified on the 

invoice for the inclusive payment and 

reflected in a payment methodology in 

the State plan. 

Comment: Several commenters noted 

that some States are reimbursing the 

hospital for their acquisition cost of 

certain new and innovative therapies 

separately from their inpatient services 

associated with administering the drug. 

They believe this would qualify as 

direct reimbursement, and result in 

States adequately reimbursing 

providers/hospitals and encouraging 

patient access. One commenter 

suggested that accounting for the drug 

cost separately in the reimbursement 

calculation is a win-win situation. 

Response: We agree that payment for 

drugs provided in this manner 

consistent with the State plan 

constitutes a direct reimbursement and 

the drug meet the definition of a 

covered outpatient drug. 

Comment: A few commenters stated 

that the proposed definition could make 

drugs reimbursed under a DRG 

reimbursement methodology or other 

bundled payment subject to rebates 

when they historically were not. These 

commenters supported this result and 

noted that these drugs are currently 

carved out of DRGs to collect rebates. 

They noted that this clarification would 

ensure States have the authority to 

collect rebates regardless of the State’s 

COD reimbursement methodology. 

These commenters stated this may be 

particularly important for new high-cost 

cell and gene therapies which are 

typically administered in medical 

facilities. 

Response: We agree the proposed 

definition could have been interpreted 

to make drugs reimbursed under a DRG 

reimbursement methodology or similar 

bundled payment methodology subject 

to rebates regardless of the State’s COD 

reimbursement methodology. As 

indicated in response to previous 

comments, we did not intend for the 

modification of the definition of COD to 

change current policy, but our review of 

comments alerted us to the fact that the 

proposed definition could be open to 

multiple interpretations. Based on such 

comments, we have modified the 

definition in this final rule to clarify 

that direct reimbursement does not 

occur unless the reimbursement for the 

drug is based on a reimbursement 

methodology that is included in the 

applicable section of the State plan, and 

that the inclusive payment includes an 

amount directly attributable to the drug. 

Thus, a drug that is reimbursed as part 

of a bundled payment under a DRG or 

similar bundled payment methodology 

is not subject to rebates. However, if that 

drug is carved out of the bundled 

payment and reimbursed directly, then 


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the drug is subject to rebates when 

applicable. 

Comment: One commenter stated 

CMS should encourage State Medicaid 

programs to implement reimbursement 

methodologies for gene therapies that 

adequately cover both the direct gene 

therapy costs and the patient care costs 

for services incident to that therapy. 

Response: We note that 

reimbursement for gene therapies, as 

with all CODs, are subject to section 

1902(a)(30)(A) of the Act’s requirements 

ensuring that States’ ‘‘payments are 

consistent with efficiency, economy, 

and quality of care and are sufficient to 

enlist enough providers so that care and 

services are available under the plan at 

least to the extent that such care and 

services are available to the general 

population in the geographic area.’’ 

Comment: One commenter stated that 

separate payment creates greater equity 

in reimbursement rates across settings of 

care, such as inpatient hospital versus 

outpatient hospital reimbursement. 

Response: Our definition of COD is 

not designed to address site of service 

concerns such as those raised by this 

commenter. Rather, it addresses when 

drugs are considered CODs, and thus 

the States can collect rebates, within 

various reimbursement methodologies. 

Comment: One commenter stated that 

allowing States to seek rebates on 

inpatient-administered drugs merely by 

identifying the drug on the claim form 

and without some form of separate 

payment, would enable States to seek 

rebates on drugs without establishing 

the separate payment policies that make 

hospitals whole and help ensure patient 

access. 

Response: We agree that this is a 

potential outcome of defining direct 

reimbursement without requiring a 

separate reimbursement policy to 

account for the cost of the drug via the 

applicable State plan, and that was not 

our intent. Our modified definition of 

direct reimbursement as finalized 

addresses this potential issue by 

requiring that the methodology for 

determining the reimbursement for a 

COD as part of a bundled payment be 

set forth in the State plan. 

Comment: A few commenters stated 

CMS does not explain what the 

‘‘itemized cost’’ represents and how it is 

to be determined and claimed it could 

essentially be a ‘‘fictional amount.’’ 

Response: This term is being revised 

in this final rule to ‘‘the charge for the 

drug’’. Providers should rely on the 

State’s billing instructions to determine 

what to report to allow for appropriate 

reimbursement. 

Comment: A commenter questioned 

whether the bundled service must be 

one in which the drug is always used. 

Response: As noted in previous 

responses to comments, the definition, 

as finalized in this rule, makes it clear 

that in order for the drug to satisfy the 

COD definition, the drug used must be 

identified, the charge for the drug must 

be itemized on the claim form, and the 

payment must be consistent with the 

reimbursement methodology for CODs 

in an approved State plan. These 

requirements may apply to drugs that 

are always used in the bundled services 

and to drugs for which this is not the 

case. 

Comment: Commenters stated that 

simple ‘‘itemization’’ on a claim form is 

not equivalent to ‘‘direct 

reimbursement.’’ 

Response: We agree, and therefore 

modified the definition in the rule to 

more clearly state that direct 

reimbursement includes a distinct 

methodology reflected in the State plan 

that accounts for the reimbursement of 

the drug and is used to determine the 

inclusive payment. 

Comment: A few commenters stated 

that States would respond to this 

modified definition of COD by requiring 

providers to include NDCs and 

ingredient costs on all PAD claims in 

the future. One commenter 

recommended that CMS consider the 

impact that its new proposed definition 

has on providers’ administrative 

burdens by requiring collection of NDCs 

and ingredient cost information, 

suggesting that including such 

information on Medicaid claims forms 

is both time-consuming and laborintensive. 

Response: We appreciate the 

comments regarding the potential 

burden to providers. Under their State 

plans, States have the discretion to 

choose which reimbursement 

methodology to use for health care 

services and what drugs, if any, they 

will carve out from that methodology 

and directly reimburse for them. As of 

January 1, 2007, CMS regulations at 

§ 447.520 have obligated States to 

require that providers submit NDCs for 

physician-administered single source 

drugs and the 20 multiple source drugs 

identified by the Secretary. 

Additionally, we note that in section II. 

L. of this rule, States are required to 

provide for the collection of NDCs for 

all physician-administered single source 

drugs and multiple source drugs. 

Comment: Some commenters stated 

that if a drug satisfies the definition of 

COD, all requirements of section 1927 of 

the Act apply (for example, all drugs of 

the manufacturer must be covered 

regardless of hospital formularies, and 

reimbursement methodology must be 

described in the State plan). 

Commenters acknowledged that States 

could impose prior authorization 

requirements and that coverage 

decisions should rest with the State and 

not the hospital. One commenter 

suggested that States not be allowed to 

skirt the coverage requirements of 

section 1927 of the Act by allowing 

hospitals to exclude from their inpatient 

formulary drugs of a manufacturer that 

has signed a NDRA. A few commenters 

expressed their concerns with their 

view that the proposed rule did not 

address how a bundled drug would be 

covered in the inpatient setting where 

restrictive formularies may apply. 

Response: If a drug typically 

administered in the inpatient setting 

qualifies as a COD, then we agree, 

notwithstanding exclusions, that section 

1927 of the Act applies to that drug. Our 

revised definition of COD does not 

change the State’s ability to decide the 

reimbursement methodology for drugs 

so long as it is approved in their State 

plan. 

Comment: One commenter stated that 

all reimbursement limitations that apply 

to CODs would need to apply to these 

bundled hospital inpatient drugs, 

specifically the Federal upper limit 

requirements found in §§ 447.512 and 

447.514. The commenter noted that this 

issue is not addressed in the proposed 

rule by the lack of new language at 

§ 447.516 ‘‘Upper limits on drugs 

furnished as part of service’’. 

Response: We did not intend for the 

modification to the definition of COD to 

change current policy, including 

Federal upper limit regulations, but our 

review of comments alerted us to the 

fact that the proposed definition as 

originally written could be open to 

multiple interpretations. A ‘‘bundled’’ 

hospital inpatient drug that the 

commenter mentions, for which direct 

reimbursement is not made, does not 

qualify as a COD. Generally, the Federal 

upper limit requirements only apply to 

multiple source drugs dispensed by a 

retail community pharmacy. The 

regulatory language in § 447.516 applies 

Federal upper limits to payment for 

prescribed drugs furnished as part of a 

service when provided as part of a 

skilled nursing facility service, 

intermediate care facility service and 

under prepaid capitation arrangement. 

This change to the COD definition does 

not make any changes to the regulatory 

language in § 447.516. 

After considering the issues raised by 

the commenters, we have decided to 

finalize this provision with 

modifications to our proposed 


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definition. In order for a payment to be 

considered direct reimbursement for a 

drug, the claim must include the charge 

for the drug, the number of units 

utilized, and the payment made to the 

provider must include an amount 

directly attributable to the drug and is 

based on a CMS approved 

reimbursement methodology. 

b. Proposal To Define Drug Product 

Information (§ 447.502) 

Section 1927(b)(3)(A) of the Act 

describes the manufacturer drug 

product and pricing information that is 

required to be reported to the agency. 

Section 6(a)(1)(A)(iv) of MSIAA 

amended section 1927(b)(3) of the Act 

by adding section (b)(3)(A)(v), under 

which a manufacturer must report drug 

product information that the Secretary 

shall require for each of the 

manufacturer’s CODs no later than 30 

days after the last day of each month of 

a rebate period. To support the 

implementation of this new statutory 

requirement to report drug product 

information, we proposed to define drug 

product information in regulation at 

§ 447.502. 

In the proposed rule, we noted that 

we currently require manufacturers to 

submit drug product information when 

the COD is entered into the Medicaid 

Drug Programs (MDP) system, but that 

there is no regulatory definition of drug 

product information. We, therefore, 

proposed to define ‘‘drug product 

information’’ in § 447.502 as 

information that includes, but is not 

limited to, NDC number, drug name, 

units per package size (UPPS), drug 

category (single source drug (S), 

innovator multiple source drug (I), and 

noninnovator multiple source drug (N)), 

unit type (for example, tablet, capsule, 

milliliter, each, etc.), drug type 

(prescription, over-the-counter), base 

date AMP, therapeutic equivalent code 

(TEC), line extension drug indicator, 5i 

indicator and route of administration, if 

applicable, FDA approval date and 

application number or OTC monograph 

citation if applicable, market date, COD 

status, and any other information 

deemed necessary by the agency to 

perform accurate URA calculations. 

As discussed in the proposed rule, the 

drug category for an NDC should be 

single source drug or innovator multiple 

source drug for the entire history of the 

NDC if it was always produced, 

distributed, or marketed under an NDA, 

unless a narrow exception applies, or 

single source if marketed under a BLA. 

If a narrow exception has been granted 

by CMS, the drug category for that NDC 

should historically be reported as single 

source drug or innovator multiple 

source drug, and can be changed to 

noninnovator multiple source drug, 

effective April 1, 2016. We noted that 

we use the FDA ‘‘applications.txt’’ file 

to verify the type of application 

associated with an application number 

and that the file may be accessed using 

the link to the Drugs@FDA download 

file found on the FDA website at https:// 

www.fda.gov/drugs/drug-approvalsand-databases/drugsfda-data-files. 

We also noted in the proposed rule 

that the only situation in which a drug 

that is produced or marketed under an 

NDA may be reported as a noninnovator 

multiple source drug is if a narrow 

exception was granted by CMS in 

accordance with the process established 

in the 2016 COD final rule. See 81 FR 

5191. Definitions for these drug 

categories can be found at section 

1927(k)(7) of the Act and at § 447.502. 

We indicated that manufacturers 

should evaluate all of their NDCs for 

compliance with drug product 

information reporting, and if they 

determine corrections are required, they 

should contact CMS for assistance. We 

also referenced Manufacturer Release 

No. 113, in which we addressed a 

manufacturer’s responsibility to ensure 

that all of their CODs are correctly 

classified and reported in the Drug Data 

Reporting system (DDR) (currently 

known as the MDP system) for the 

history of the NDC, including such 

NDCs that may no longer be active 

(https://www.medicaid.gov/ 

prescription-drugs/downloads/mfr-rel113.pdf). We also noted that as part of 

a manufacturer’s evaluation of their 

NDCs for compliance with accurate drug 

product information reporting, they 

should ensure that each NDC is reported 

with an accurate market date. 

In the proposed rule, we proposed to 

add a definition for ‘‘market date’’ for 

the purposes of the MDRP. Please see 

proposed § 447.502 for that proposed 

definition and elsewhere in this 

preamble for an explanation of how 

market date is used to determine the 

quarter that establishes each drug’s base 

date AMP. 

For most drug product information 

changes, we noted we would make the 

requested changes on behalf of the 

manufacturer in the CMS system, and 

those changes would subsequently be 

available for manufacturer certification. 

However, we noted that in some 

situations where monthly or quarterly 

pricing data must be updated as a result 

of the drug product information change, 

if necessary, we would notify the 

manufacturer that certain pricing data 

fields have been ‘‘unlocked’’ in the CMS 

system to allow the manufacturer to 

enter or correct required pricing 

information if applicable. Additionally, 

we noted that regardless of whether we 

make a data change on behalf of a 

manufacturer or whether the 

manufacturer enters required data 

directly in the MDP system, 

manufacturers would be required to 

certify the information in accordance 

with § 447.510. Thus, we indicated that 

if we make a data change at the request 

of a manufacturer, the manufacturer is 

not relieved of its responsibility to 

ensure the accuracy of such data. 

We also stated that until certification 

is complete, the changes in the CMS 

system are not considered final and 

would not be used in any quarterly 

rebate calculations or transmitted to the 

States as part of the quarterly rebate 

files; however, the manufacturer is still 

responsible for correct URA calculations 

and rebate payments. If drug product 

information changes remain uncertified, 

the previously certified values would 

remain in effect; therefore, corrections 

made in the CMS system that remain 

uncertified would result in the drug 

continuing to be considered 

misclassified or misreported. We noted 

that we would consider this to be late 

reporting of product data for which a 

manufacturer’s rebate agreement may be 

suspended from the MDRP under 

section 1927(b)(3)(C)(i) of the Act and 

eventually terminated as authorized 

under section 1927(b)(4)(B) of the Act. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: We received several 

comments supporting our proposed 

definition of drug product information. 

Commenters indicated that the 

proposed definition removes ambiguity 

and closes potential loopholes. 

Response: We appreciate the 

commenters’ support for the proposed 

definition of drug product information. 

Comment: A few commenters stated 

that the statute’s scope is limited to drug 

product attributes found in the statute 

and the regulation, and that several data 

elements that we included in the 

definition are not found in statute or 

regulation. 

Response: We disagree that drug 

product information must be limited to 

product attributes specifically 

mentioned in the statute. The statute 

provides direction for CMS to 

administer the MDRP, which includes 

how rebate amounts are calculated. 

Some data fields that are utilized in 

calculating the unit rebate amount are 

not specifically set forth in statute but 

are nonetheless required to perform the 

calculations that are detailed in the 

statute or to confirm the accuracy of 


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those calculations. For example, 

although ‘‘unit type’’ is not a data 

element mentioned in statute, it is an 

important data element that helps to 

identify what the reported AMP 

represents. If the unit type is reported 

incorrectly, it is possible that the AMP 

value may be misinterpreted. CMS has 

determined to set forth by regulation the 

data elements that must be reported as 

part of drug product information. 

Comment: One commenter suggested 

CMS limit the items included in the 

definition of drug product information 

to those items related to drug category. 

Response: We are not limiting the 

items included in the definition of drug 

product information to those items 

related to drug category because we do 

not believe that approach would be 

consistent with the statute. MSIAA 

inserted the words ‘‘and drug product’’ 

to the title of section (b)(3) of the Act, 

as well as other references to drug 

product information, when addressing 

the information required to be reported 

by manufacturers and the 

misclassification of drugs. Therefore, 

the definition must include not only 

elements that are related to drug 

category, but also other elements that 

are required to perform the calculations 

of the unit rebate amount and to be able 

to help confirm the accuracy of the 

calculations in accordance with the 

statute. CMS believes the elements 

chosen for inclusion in this definition 

are essential to ensure that unit rebate 

amount calculations are accurate, and 

that CMS has accurate data to be able to 

oversee the MDRP. 

Comment: One commenter requested 

clarification on the inclusion of base 

date AMP as an element of drug product 

information and questioned if the 

current file format will be amended to 

include base date AMP. 

Response: The current file format will 

not need to be amended for the reasons 

explained later in this section. In order 

to fully respond to this comment, we 

need to delineate between different base 

date AMP values. If a drug has a market 

date of September 30, 1990, because it 

was first available for sale on or before 

that date, then the base AMP for the 

drug is referred to as the OBRA ’90 base 

date AMP. The OBRA ’90 base date 

AMP value, as well as all of the different 

base date AMP values, are considered to 

be product data. A manufacturer reports 

the OBRA ’90 base date AMP value into 

MDP as part of the product data when 

first reporting the drug to CMS. The 

OBRA ’90 base date AMP value is a 

value on the product data file (Form 

CMS–367c), and no file format 

amendments are required. 

In general, if a drug has a market date 

after September 30, 1990, which is the 

date it was first available for sale, the 

base date AMP values are derived from 

quarterly pricing information that is 

reported by the manufacturer for the 

base AMP quarter. For each base date 

AMP value other that the OBRA ’90 base 

date AMP value, the MDP system 

automatically populates the base date 

AMP value in the product data using the 

quarterly pricing information submitted 

by the manufacturer as pricing data for 

the base AMP quarter. Although these 

other base date AMP values are derived 

from quarterly pricing information for 

the base AMP quarter, the base date 

AMP values are not considered to be 

pricing data. Those base date AMP 

values other than the OBRA ’90 base 

date AMP values are not reported 

directly into MDP as product data and 

do not appear in the product data file. 

Comment: A few commenters stated 

that the changes that the Congress made 

to the statute were to address 

misclassifications, not drug pricing 

issues, and therefore any drug pricing 

references should be removed from 

definition of drug product information. 

Response: The changes to the statute 

made by MSIAA are not solely to 

address drug category, but also to 

address incorrect reporting of additional 

drug product information. The items 

included in the definition of drug 

product information are all considered 

to be product information. As an 

example, although the base date AMP 

value is a pricing value, it is considered 

product information. It generally does 

not change once established and is tied 

to the drug throughout the history of 

that drug in the MDP system. Pricing 

information is reported monthly and 

quarterly and may change from one 

reporting period to the next. 

Additionally, elements such as unit type 

or TEC code are not directly related to 

drug category, however they are 

included in the definition of drug 

product information. 

Comment: A few commenters stated 

that the definition of drug product 

information must be prospective only 

and that CMS should clarify the 

effective dates of definition changes. 

Response: The definition of drug 

product information becomes effective 

on the effective date of this final rule. 

With this definition of drug product 

information, we are not adding or 

changing any reporting requirements, 

we are only defining which reporting 

elements are included in the definition 

of drug product information. 

Comment: A few commenters were 

concerned that the proposed rule would 

treat a clerical error that has no impact 

on the MDRP the same as a misreported 

data element that has direct impact on 

URA calculations, such as base date 

AMP. 

Response: The proposed definition of 

drug product information lists the data 

elements that are considered to be drug 

product information. The definition 

itself does not indicate how 

misreporting of any element of drug 

product information will be evaluated 

for potential penalties; misclassification 

of drug product information is 

addressed in the misclassification 

section of the rule. In that section, we 

state that we believe misclassification 

includes any incorrect drug product 

information reported by the 

manufacturer. Also in that section, we 

proposed several penalty options in 

accordance with the penalty options 

contained in section 1927(c)(4)(B) of the 

Act and note that CMS may utilize one 

or more of them in each situation. One 

of those options is for CMS to correct 

the misclassification on behalf of the 

manufacturer using drug product 

information provided by the 

manufacturer. As discussed in the 

misclassification section, the 

enforcement provisions in section 

1927(c)(4)(B)(ii) provide options for 

CMS to take action when a 

manufacturer fails to correct a 

misclassification. CMS’ current process 

within the MDP system requires the 

manufacturer to certify any change 

made in the MDP system. However, 

CMS may certify changes on behalf of 

the manufacturer and would do so in 

this specific situation. Outside of this 

specific situation, as discussed in the 

preamble of the proposed rule, any 

change made in the MDP system by 

CMS must be certified by the 

manufacturer before it becomes 

effective. 

Comment: We received several 

comments regarding the ‘‘open-ended’’ 

definition of drug product information. 

Commenters were concerned that 

although we listed specific data that 

would be included in the definition, we 

also specified that the definition was 

not limited to those data elements. 

Specifically, commenters disagreed with 

the inclusion of ‘‘information that 

includes but is not limited to’’ and ‘‘and 

any other information deemed necessary 

by the Agency to perform accurate Unit 

Rebate Amount calculations.’’ 

Commenters stated that we lack the 

authority to leave the definition openended, that issuing ‘‘catch-all’’ phrases 

in definitions bypasses the notice and 

comment requirements, and that we 

must define terms with precision. Other 

commenters were concerned that the 

broad, open-ended provision in the 


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definition gives CMS a vehicle for 

arbitrary enforcement and leaves open 

the opportunity for inconsistent 

application year to year. One 

commenter stated that we should either 

strike the open-ended definition or 

delete ‘‘drug product information’’ from 

§ 447.509(d)(1). 

Response: While we disagree that we 

lack the authority to adopt provisions 

such as the definition proposed, we 

agree with the commenters that it would 

be appropriate to remove the ‘‘openended’’ provisions in the proposed 

definition of drug product information. 

We are additionally making slight edits 

to the construction of the proposed 

definition to make it clear to which 

elements the term ‘‘if applicable’’ 

applies. Therefore, drug product 

information will now be defined as 

National Drug Code (NDC), drug name, 

units per package size (UPPS), drug 

category (‘‘S’’, ‘‘I’’, ‘‘N’’), unit type (for 

example, TAB, CAP, ML, EA), drug type 

(prescription, over-the-counter), base 

date AMP, therapeutic equivalent code 

(TEC), line extension drug indicator, 5i 

indicator, 5i route of administration (if 

applicable), FDA approval date, FDAapproved application number or OTC 

monograph citation (if applicable), 

market date, and COD status. 

Comment: A few commenters stated 

that the language proposes that 

manufacturers would have to report 

each element of drug product 

information repeatedly and that would 

be burdensome or unnecessary. 

Response: Section 1927(b)(3)(A)(v) of 

the Act states that manufacturers must 

report, not later than 30 days after the 

last day of each month of a rebate period 

under the agreement, such drug product 

information as the Secretary shall 

require for each of the manufacturer’s 

covered outpatient drugs. Currently, we 

require that drug product information be 

reported not later than 30 days after the 

date of entering into a rebate agreement, 

or, for newly introduced drugs, not later 

than 30 days after the last day of the 

month during which the new drug is 

introduced. Such drug product 

information is not required to be 

reported on a monthly or quarterly basis 

at this time, and we therefore disagree 

with commenters’ concerns that the 

definition requires unnecessary, 

repetitive, or overly burdensome 

reporting. 

Based on the comments received, we 

are finalizing the definition as proposed 

with the previously described sentence 

structure changes and the following 

additional changes: 

• Deleting ‘‘. . . includes but is not 

limited to . . .’’ and replacing it with 

‘‘means’’ 

• Deleting ‘‘. . . COD status, and any 

other information deemed necessary 

by the agency to perform accurate unit 

rebate amount (URA) calculations.’’ 

and replacing it with ‘‘and COD 

status.’’ 

c. Proposal To Define Internal 

Investigation for Purposes of Pricing 

Metric Revisions (§§ 447.502 and 

447.510) 

In the proposed rule, we included a 

provision that would define internal 

investigation related to manufacturer 

reporting of quarterly pricing metrics. 

As background, we noted in the 

preamble to the proposed rule, in 

accordance with section 1927(b)(3) of 

the Act, § 447.510 of the implementing 

regulations, and the terms of the NDRA, 

manufacturers are required to report 

certain pricing and drug product 

information to CMS on a timely basis for 

the purposes of the MDRP, or else they 

could incur penalties or be subject to 

other compliance and enforcement 

measures. We noted that in an effort to 

improve the administration and 

efficiency of the MDRP and assist States 

and manufacturers that would otherwise 

be required to retain drug utilization 

pricing data records indefinitely, we 

established the 12-quarter time period 

for reporting revisions to AMP or best 

price information in final rule 

(Medicaid Program; Time Limitation on 

Price Recalculations and Recordkeeping 

Requirements Under the Drug Rebate 

Program) on August 29, 2003. However, 

we have continued to receive requests 

outside of the 12-quarter time period 

from manufacturers to revise pricing 

data. We stated that these types of 

manufacturer requests, which could 

span multiple years prior to the 12- 

quarter time period, could sometimes 

result in substantial recoupment of 

Medicaid rebates already paid to States 

and impede the economic and efficient 

operation of the Medicaid program. 

We noted that in the 2016 COD final 

rule we offered exceptions to the 12- 

quarter time period (81 FR 5278, See 

§ 447.510(b)(1)(i) through (vi)). 

Specifically, we discussed one 

exception at § 447.510(b)(1)(v) (which 

provides an exception to the 12-quarter 

time period price reporting rule if the 

change requested by the manufacturer is 

to address specific rebate adjustments to 

States by manufacturers, as required by 

CMS or court order, or under an internal 

investigation, or an OIG or Department 

of Justice (DOJ) investigation) pertaining 

to adjustments pursuant to an internal 

investigation. We explained that our 

policy has been that internal 

investigation is intended to mean a 

manufacturer’s internal investigation, 

and that if a manufacturer discovers any 

discrepancy with its reported product 

and pricing data to the MDRP that is 

outside of the applicable timeframes, 

the manufacturer should determine if 

the change satisfies one of the 

enumerated exceptions (81 FR 5280). 

However, we acknowledged that we 

have not further defined or given any 

greater explanation for the applicability 

of the exception to the 12-quarter time 

period rule up to that point, particularly 

in instances when manufacturers 

perform an internal investigation of the 

drug price information (AMP and best 

price) reported and certified in MDP by 

another manufacturer. Additionally, we 

noted that, given the absence of a 

definition of internal investigation or 

specificity as to when this exception 

applies, some manufacturers have 

broadly interpreted the internal 

investigation exception to the 12-quarter 

time period rule. Consequently, in the 

proposed rule, we proposed a definition 

to provide greater clarity in this area. 

Our requirement does not override or 

otherwise diminish a manufacturer’s 

obligation to make sure that it has paid 

the statutorily required rebate amount. 

The discussion herein only applies to 

the paragraph of § 447.510(b)(1)(v) 

‘‘internal investigation’’ and does not 

obviate or negate any requirement 

resulting from a CMS or court order, or 

an OIG or DOJ investigation. 

In cases when a manufacturer 

requests an exception to the 12-quarter 

time period rule due to an internal 

investigation, we proposed to specify 

that the manufacturer must make a 

finding that indicates a violation of 

statute or regulation before we consider 

such a request. For example, a request 

by a manufacturer to restate or revise 

previously reported and certified 

pricing data outside of the 12-quarter 

time period based upon a mere 

disagreement with a prior 

manufacturer’s government pricing 

calculations and assumptions, would 

not be considered a valid reason to 

revise a prior manufacturer’s pricing 

outside of the 12-quarter time period. In 

this example, the manufacturer must 

make findings that include actual data 

from the prior manufacturer as evidence 

that the prior manufacturer violated 

statute or regulation. 

We noted in the preamble to the 

proposed rule that manufacturers 

should not use the internal investigation 

exception to allow for application of a 

different methodology or reasonable 

assumption to determine AMP and best 

price to its favor when the methodology 

originally applied was consistent with 

statute and regulation, and drug product 

and pricing information was properly 


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reported and certified by the 

manufacturer at the time. Therefore, to 

ensure clarity on when the internal 

investigation exception may be 

appropriately applied, we proposed to 

define internal investigation at 

§ 447.502 to mean a manufacturer’s 

investigation of its AMP, best price, 

customary prompt pay discounts, or 

nominal prices that have been 

previously certified in MDRP that 

results in a finding made by the 

manufacturer of fraud, abuse or 

violation of law or regulation. We 

further indicated that a manufacturer 

must make data available to CMS to 

support its finding. We also proposed to 

amend § 447.510(b)(1)(v) to reference 

the definition of internal investigation at 

§ 447.502. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: A few commenters 

opposed the proposed definition of 

internal investigation, with some stating 

that this definition will lead 

manufacturers to avoid internal audits 

and fail to identify violations of fraud, 

abuse, or violations of law or regulation, 

such that it would reduce the accuracy 

and reliability of price reporting 

metrics. The commenters encouraged 

CMS to develop a proposal that 

maintains the viability of the internal 

investigation exception to the 12-quarter 

time period rule, instead of foreclosing 

price revision requests following an 

internal investigation. 

Specifically, commenters indicated 

that manufacturers would have to admit 

legal fault in order to request a 

restatement outside the 12-quarter time 

period, which would have a chilling 

effect on appropriate restatements when 

there is no legal fault. For example, 

commenters indicated that 

manufacturers that are risk averse, or 

maintain a more conservative approach 

to price reporting than the previous 

owner, would likely not pursue price 

revision requests because of admission 

of fault. The commenters further 

indicated that there are many reasons 

why a manufacturer’s reported AMP 

and best price may require correction, 

including resolution of price disputes 

for certain providers/customers that 

eventually impact best price and/or 

AMP or discovery of good-faith 

mathematical errors. They stated that 

CMS should withdraw its proposal of 

the definition of internal investigation 

and recognize manufacturer requests 

outside the 12-quarter time period for 

what they are: good faith attempts to 

comply with complex and 

consequential government reporting 

obligations. 

Response: CMS believes that most 

manufacturers are making good faith 

attempts to comply with MDRP price 

reporting rules. CMS also maintains that 

manufacturers have sufficient time to 

address revisions in MDP to the 

manufacturer’s AMP, best price, 

customary prompt pay discounts, or 

nominal prices within the 12-quarter 

time period (3-year time period) in 

accordance with the timeframe set in 

§ 447.510. Through notice and comment 

rulemaking, CMS published the final 

rule (CMS–2175–FC) that set forth the 

12-quarter (3-year) time period on 

August 29, 2003. In the 2003 final rule, 

CMS reiterated concerns expressed by 

States regarding pricing changes and 

recalculations that were occurring under 

the MDRP back to 1991, and the 

significant burden on States and 

manufacturers to maintain pricing data 

and supporting documentation for such 

an extended time period. Based on these 

considerations, a time limit was adopted 

(68 FR 51913). As there were no 

comments received regarding extending 

this period beyond 12-quarters in 

response to the 2003 proposed rule, 

CMS adopted the 12-quarter time period 

and communicated that we would not 

choose a longer period than 3 years 

because it would not sufficiently 

alleviate States’ fiscal vulnerability with 

regard to retroactive pricing changes (68 

FR 51916). 

While we have enacted exceptions to 

allow for restatements in certain 

circumstances beyond the 12-quarter 

time period, we continue to believe that 

we should minimize requests to restate 

outside of that time period to improve 

the administration and efficiency of the 

MDRP and to assist States and 

manufacturers that would otherwise be 

required to retain drug utilization 

pricing data records indefinitely (88 FR 

34253). As a result, we are finalizing the 

definition of internal investigation, but 

we are amending the definition to add 

the term ‘‘possible’’ so that such 

restatements would not be construed as 

an admission of legal fault. Therefore, as 

finalized, we will define internal 

investigation at § 447.502 to mean: a 

manufacturer’s investigation of its AMP, 

best price, customary prompt pay 

discounts, or nominal prices that have 

been previously certified in the MDRP 

that results in a finding made by the 

manufacturer of possible fraud, abuse, 

or violation of law or regulation. A 

manufacturer must make data available 

to CMS to support its finding. CMS 

notes that neither the general 12-quarter 

time period for restatements nor the 

exceptions allowing for restatements in 

certain circumstances beyond the 12- 

quarter time period, including pursuant 

to an internal investigation, alleviate the 

manufacturer of its obligation to 

accurately report product and pricing 

information for covered outpatient 

drugs to CMS consistent with section 

1927 of the Act and applicable 

regulations and guidance. 

Comment: A commenter indicated 

that a manufacturer may conclude after 

an internal investigation that it should 

change a unit type for a drug (for 

example, the unit type of a vial of 

lyophilized powder for reconstitution 

and injection from gram to each) based 

on CMS guidance. The commenter also 

indicated that although the use of the 

initial unit type is not a violation of law 

or regulation, let alone fraud or abuse, 

restatement beyond the 3-year window 

would be prohibited, and the 

prospective use of the preferable unit 

type would be precluded by the 

inability to correct the base date AMP. 

The commenter provided as another 

example a manufacturer that, as a result 

of an internal investigation, changes a 

reasonable assumption about a customer 

or its class of trade. The commenter 

noted that an internal investigation may 

uncover new information that a group 

purchasing organization (GPO) passes 

through administrative fees to its 

members, or that a pharmacy dispenses 

greater than 50 percent of its 

prescriptions through the mail, which 

the commenter indicated could lead to 

a different treatment of the customer in 

the AMP and best price calculations. 

Response: Existing regulation at 

447.510(b)(1)(v) provides that if ‘‘[t]he 

change is to address specific rebate 

adjustments to States by manufacturers, 

as required by CMS . . .’’ and a 

manufacturer requests a change to a 

drug’s unit type in our system because 

CMS has directed the manufacturer to 

make the change, that reason may be 

considered by CMS as an exception to 

the 12-quarter time period rule. 

Revisions to a manufacturer’s 

determination of AMP and best price 

because a manufacturer uncovers new 

information about the calculation it 

made 12 quarters in the past may meet 

the exception only if the change is to 

address rebate adjustments to States as 

directed under 447.510(b)(1)(v). That is, 

the change is required by CMS or court 

order, or under an internal investigation 

(as defined at 447.502) or an OIG or DOJ 

investigation. 

Comment: Several commenters noted 

that they are concerned with CMS’ 

assertion in the proposed rule that a 

manufacturer purchasing another 

manufacturer or another manufacturer’s 

products, are not valid reasons to restate 


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pricing outside of the 12-quarter limit. 

A commenter stated that revisions made 

outside of the 12-quarter time period 

conflict with a basic operating premise 

of the MDRP, as codified in the NDRA. 

That is, acknowledging the complexity 

of the Medicaid rebate statute and price 

reporting requirements, the commenter 

stated that CMS has long encouraged 

manufacturers to make ‘‘reasonable 

assumptions’’ in calculating price 

reporting metrics. As a result, the 

commenter noted that a manufacturer 

may revise the previously reported 

pricing data of a prior manufacturer 

using a different, reasonable 

methodology to align a newly acquired 

product with the reasonable 

assumptions and price reporting 

practices of existing company products. 

Commenters also indicated that the 

proposed definition would prevent a 

manufacturer from requesting to restate 

pricing metrics calculated using the 

manufacturer’s preferred compliant 

method upon acquiring a new COD 

where the pricing metrics for the COD 

were initially reported with a different 

compliant method. They stated that this 

policy would discourage merging 

entities from harmonizing their 

reporting methods and could require a 

manufacturer to employ various 

methods of calculating pricing metrics 

to various different CODs, increasing the 

administrative burdens of complying 

with its reporting obligations and 

increasing the risk of reporting 

inaccuracies by introducing the 

potential for misapplication of the 

wrong calculation method for a given 

COD. 

Response: CMS reiterates that we will 

not accept a change in pricing outside 

the 12-quarter time period because of a 

change in a manufacturer’s reasonable 

assumptions or ownership. The 

manufacturer may prospectively, or 

within the 12-quarter time period, revise 

reasonable assumptions associated with 

the drug pricing, including correcting 

any customer or class of trade 

transactions associated with the revised 

reasonable assumptions. Manufacturers 

may also harmonize their preferred 

compliant methodology for pricing 

within the 12-quarter time period. 

Permitting manufacturers to revise 

prices retroactively that were previously 

verified by another manufacturer and in 

perpetuity because of changes to a 

transfer of ownership would be contrary 

to the established 12-quarter time period 

CMS adopted in rulemaking in 2003 

under CMS–2175–FC. As previously 

noted, at that time, CMS decided not to 

extend the 12-quarter time period and 

communicated that we would not 

choose a longer recordkeeping than 3 

years because it would not sufficiently 

alleviate States’ fiscal vulnerability with 

regard to retroactive pricing changes (68 

FR 51916). Therefore, while we have 

established exceptions to the 12-quarter 

time period rule at § 447.510(b), we 

believe we should minimize granting 

requests outside of the 12-quarter time 

period, including restatements of 

pricing reported for a product 

previously owned, reported, and 

certified by another manufacturer. 

Also, as noted in a prior response to 

comments, CMS seeks to minimize 

requests to restate drug pricing 

information outside of the 3-year 

timeframe to improve the 

administration and efficiency of the 

MDRP and assist States and 

manufacturers that would otherwise be 

required to retain drug utilization 

pricing data records indefinitely (88 FR 

34253). In this regard, we continue to 

believe the 12-quarter time period with 

the existing exceptions, as clarified in 

this final rule, allows manufacturers to 

revise pricing without disrupting the 

administration and efficiency of the 

MDRP. We note that if a manufacturer 

is concerned with liability associated 

with the prices or pricing metrics used 

by the selling manufacturer, CMS 

believes that such concerns regarding 

legal liability because of the incorrect 

reported price information should be 

addressed as part of contract negations 

between the selling and buying 

manufacturer. 

Comment: One commenter supported 

CMS’ request for data to support 

compliance with laws and regulations 

in 12-quarter time period rule exception 

requests. The commenter agreed that it 

sets a clearer and stricter standard for 

the exception of the 12-quarter time 

period by excluding subsequent internal 

reviews to revise in the manufacturer’s 

favor pricing data that was compliant 

with laws and regulations. 

Response: We agree with the 

commenter that the use of data to 

support revisions to prices outside of 

the 3-year timeframe to reinforce a 

manufacturer’s finding of potential noncompliance with laws and regulations 

establishes a clear standard for when an 

exception may apply. We believe the 

definition of internal investigation, as 

finalized in this rule, will address this 

concern. 

Comment: A commenter indicated 

that the inability to restate a base date 

AMP to harmonize different calculation 

methods could distort the Medicaid 

additional rebate calculation. Such 

rebates are calculated by reference to the 

difference between a COD’s current 

AMP and its baseline AMP. The 

commenter stated that if a manufacturer 

is prevented from restating baseline 

AMP under its current AMP calculation 

method, then the additional rebate 

calculations for every future period will 

be distorted by the methodology 

difference. 

Response: Manufacturers can restate 

base date AMP within 3 years of the 

initial price reported consistent with 

§ 447.510(b). Furthermore, when CMS 

issues final regulations to reflect 

revisions made to the statute’s 

calculation of AMP, CMS allows 

manufacturers to restate their base date 

AMP in accordance with those 

regulatory and statutory changes so that 

the baseline AMP is consistent with the 

reported AMP. For example, in the 2016 

COD final rule, CMS permitted 

manufacturers to recalculate their base 

date AMP in accordance with the 

revisions made to the determination of 

AMP under the Affordable Care Act (see 

81 FR 5281). In accordance with the 

§ 447.502 definition of internal 

investigation, as finalized in this rule, 

CMS will not permit a manufacturer to 

revise the base date AMP outside of the 

3-year timeframe unless the internal 

investigation results in a finding made 

by the manufacturer of possible fraud, 

abuse, or violation of law or regulation. 

Comment: Several commenters 

pointed out that rebates under the 

Medicare Part D Drug Inflation Rebate 

Program for Part D rebateable drugs are 

calculated by reference to the amount by 

which the drug’s ‘‘annual manufacturer 

price’’ (AnMP) exceeds the ‘‘inflationadjusted rebate amount.’’ AnMP is 

calculated by using, in part, the AMP of 

a drug over 4 calendar quarters. The 

commenters indicated that any inflation 

rebate calculated for Medicare Part D 

purposes could also be distorted by 

CMS’ proposal. They stated that if 

manufacturers are prevented from 

restating AMP under this proposal in 

MDRP rulemaking, then future Part D 

rebate calculations will be based on the 

same distorted comparison as the 

Medicaid rebates. They also noted that 

as AnMP and the benchmark period 

manufacturer price are calculated by 

using multiple quarterly AMPs, any 

adjustments to CMS’ proposed 

redefinition intended to avoid these 

distortions should allow manufacturers 

to restate AMP for all quarters relevant 

to these calculations for the particular 

drug. 

Response: As noted in the response to 

the previous comment, manufacturers 

can restate base date AMP within 3 

years of the initial price reported 

consistent with § 447.510(b), and CMS 

will allow manufacturers to revise base 

date AMP to reflect revisions made to 

the statute’s calculation of AMP. 


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8https://www.cms.gov/files/document/medicarepart-d-inflation-rebate-program-revisedguidance.pdf. 

9https://www.federalregister.gov/documents/ 

2024/07/31/2024-14828/medicare-and-medicaidprograms-cy-2025-payment-policies-under-thephysician-fee-schedule-and-other. 

10Manufacturer Release #80: (https://

www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/mfr-releases/mfr-rel080.pdf). 

However, in accordance with the 

§ 447.502 definition of internal 

investigation as finalized in this rule, 

CMS will not permit a manufacturer to 

revise the base date AMP outside of the 

3-year timeframe unless the 

manufacturer’s investigation results in 

findings of possible fraud, abuse, or 

violation of law or regulation. As 

previously stated and in the proposed 

rule, the definition will clarify for 

manufacturers that they should not use 

the internal investigation exception to 

allow for the application of a different 

methodology or reasonable assumption 

to determine AMP and best price to its 

favor when the methodology originally 

applied was consistent with statute and 

regulation, and drug product and 

pricing information was properly 

reported and certified by the 

manufacturer previously. CMS has 

published revised guidance with respect 

to the operation of the Medicare Part D 

Drug Inflation Rebate Program, 

Medicare Part D Drug Inflation Rebates 

Paid by Manufacturers: Revised 

Guidance, Implementation of Section 

1860D–14B of the Social Security Act,8

and is engaged in rulemaking for this 

program.9 CMS refers commenters to 

Medicare Part D Drug Inflation Rebate 

Program materials for information on 

how the Medicare Part D Drug Inflation 

Rebate Program will use AMP data for 

the purposes of calculating inflation 

rebates. 

Comment: Several commenters 

believe that the proposed rule would 

discourage manufacturers from taking 

the required measures of correcting the 

calculations beyond the 12-quarter time 

period, which could result in 

calculations that are inconsistent with 

the manufacturer’s methodology and 

may result in favor of the State. The 

commenters suggested that CMS allow 

manufacturers to submit policy changes 

prior to the 12-quarter time period and 

seek approval from CMS with 

documentation and the reason for the 

policy change, but not necessarily 

details pertaining to pricing impact 

either in States or manufacturer’s favor. 

The commenters indicated that, if CMS 

does not approve the manufacturer’s 

policy changes prior to the 12-quarter 

time period, then the manufacturer 

should not proceed with restating the 

price. The commenter also suggested 

that manufacturers be allowed to get 

approval from CMS to recalculate prices 

when the manufacturer has identified 

new or changed information in the 

underlying data which caused the 

earlier calculation to be incorrect. 

Response: We believe the commenter 

is requesting that CMS approve a 

manufacturer’s pricing methodology or 

change in information prior to the 

manufacturer submitting a restatement 

beyond the 12-quarter time period and 

not before the 12-quarter time period. 

Current CMS policy allows the 

manufacturer to change its pricing 

information prior to the 12-quarter time 

period without requesting CMS 

approval. CMS has a long-held policy 

that a manufacturer that needs to make 

future recalculations regarding AMP or 

best price methodology may do so 

without prior review and approval by 

CMS and that manufacturers must 

report to CMS these revisions to AMP 

and or best price for a period not to 

exceed 12 quarters from the quarter 

which the data were due.10 This final 

rule does not impact this CMS policy. 

However, if the manufacturer provides 

findings to CMS that the manufacturer’s 

pricing methodology may result in 

possible fraud, abuse, or violation of law 

or regulation, CMS may consider 

permitting the manufacturer to restate 

its pricing based on the revised 

methodology outside of the 12-quarter 

time period. 

Therefore, as we noted in the 

response to the previous comment, we 

will finalize the definition of internal 

investigation but amend the definition 

to add the term ‘‘possible’’ so that a 

manufacturer’s restatements would not 

be construed as an admission of legal 

fault. Instead, we will define internal 

investigation at § 447.502 to mean: a 

manufacturer’s investigation of its AMP, 

best price, customary prompt pay 

discounts, or nominal prices that have 

been previously certified in the MDRP 

that results in a finding made by the 

manufacturer of possible fraud, abuse, 

or violation of law or regulation. A 

manufacturer must make data available 

to CMS to support its finding. 

d. Proposal To Revise the Definition of 

Manufacturer for NDRA Compliance 

(§ 447.502) 

We proposed to further refine the 

definition of manufacturer at § 447.502 

to codify the requirements under section 

1927(a)(1) of the Act, which specifies 

that a manufacturer has to have entered 

into and have in effect a rebate 

agreement with the Secretary in order 

for payment to be available for their 

CODs under Medicaid. We also 

proposed to codify in regulation that all 

entities (with their applicable labeler 

codes) that are associated or affiliated 

with a manufacturer must have a rebate 

agreement in effect in order for the 

manufacturer to satisfy the statutory 

requirement that the manufacturer have 

a rebate agreement in effect with the 

Secretary. 

CMS received a number of thoughtful 

comments on this topic, and we 

determined not to finalize the proposed 

policy at this time. We are continuing to 

review the input provided by 

commenters, which may inform future 

rulemaking on this topic. 

e. Proposal To Define Market Date 

(§ 447.502) 

In the proposed rule, we included a 

provision that would establish a 

definition for market date in regulation. 

This proposed definition would: (1) 

modify one aspect of previous agency 

guidance regarding the market date for 

a drug by requiring in regulation that 

the market date reflect the date of first 

sale of the drug, rather than the date the 

drug was first available for sale, by any 

manufacturer; and, (2) codify CMS’ 

historical policy that the market date 

does not change if a drug is purchased 

or otherwise acquired from another 

manufacturer. 

Prior instructions and guidance to 

assist manufacturers in determining the 

market date for a drug to report to MDP 

specified that the market date was the 

date the drug was first available for sale 

by any manufacturer. This prior 

guidance is available in various sources, 

including program notices, the MDP 

User Guide located within MDP, user 

manuals previously available in the 

older Drug Data Reporting for Medicaid 

(DDR) system, and in data definitions in 

CMS form 367c. 

As background in the preamble to the 

proposed rule, we noted that section 

1927 of the Act governs the MDRP and 

payment for CODs, which are defined in 

section 1927(k)(2) of the Act. Pursuant 

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

manufacturers that participate in the 

MDRP are required to pay rebates for 

CODs that are dispensed and paid for 

under the State Medicaid plan. 

Additionally, section 1927 of the Act 

provides specific requirements for 

program implementation, including 

requirements for rebate agreements, 

submission of drug pricing and product 

information, confidentiality, the 

formulas for calculating rebate 

payments, and many others related to 

State and manufacturer obligations 

under the program. The rebates owed by 


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11Section 602 of the Bipartisan Budget Act (BBA) 

of 2015 amended section 1927(c)(3) of the Act, to 

require that manufacturers pay additional rebates 

when their covered outpatient drugs other than 

single source or innovator multiple source drugs’ 

average manufacturer prices increase at a rate that 

exceeds the rate of inflation. In accordance with 

section 1927(c)(3) of the Act, as revised by section 

602 of the BBA of 2015, manufacturers must 

calculate these additional rebates for these drugs 

beginning with the January 1, 2017 quarter (that is, 

first quarter of 2017). 

12Base Date AMP is defined in the National Drug 

Rebate Agreement (NDRA) at I.(c) as follows: ‘‘Base 

Date AMP’’ will have the meaning set forth in 

sections 1927(c)(2)(A)(ii)(II) and 1927(c)(2)(B) of the 

Act. See also I.(l) definition of ‘‘marketed’’. Section 

VIII.(a) provides that the agreement is subject to any 

changes in the Medicaid statute or regulations that 

affect the rebate agreement. Thus, any changes to 

regulations are incorporated into rebate agreements 

without further action. See also Manufacturer 

Release 113—Misclassification of Drugs 

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

prescription-drugs/downloads/mfr-rel-113.pdf. 

13For a drug with a market date prior to October 

1, 1990, the MDRP reporting system defaults to a 

market date of September 30, 1990. The system 

assigns a base date AMP quarter of fourth quarter 

of 1990 to such drugs as the statute defines (section 

1927(c)(2)(A)(ii) of the Act). 

14The FDA approved application (for example 

the NDA itself) includes all FDA approved 

supplements to the application. 

manufacturers are calculated based on 

statutory formulas described in section 

1927(c) of the Act and consist of a basic 

rebate and, in some cases, an additional 

rebate that is applicable when an 

increase in the AMP, with respect to 

each dosage form and strength of a drug, 

exceeds the rate of inflation. This 

additional rebate formula is set forth in 

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

the Act and codified in regulation at 

§ 447.509(a)(2) and (7).11

We also noted in the proposed rule 

that the additional rebate calculation 

requires a determination of the AMP for 

the dosage form and strength of the drug 

for the current rebate quarter, and a 

comparison of that AMP to the AMP for 

the dosage form and strength of that 

drug for a certain calendar quarter, 

generally referenced as the base date 

AMP quarter.12 For S or I drugs, the base 

date AMP quarter is the third quarter of 

1990 for drugs that were first marketed 

prior to fourth quarter of 1990, or the 

first full calendar quarter after the day 

on which the drug was first marketed 

for drugs that were first marketed on or 

after October 1, 1990.13 (See sections 

1927(c)(2)(A) and 1927(c)(2)(B) of the 

Act.) For other drugs (including N drugs 

and other drugs reported as N), we 

noted that the base date AMP quarter is 

the third quarter of 2014 for drugs that 

were first marketed prior to April 1, 

2013, or the fifth full calendar quarter 

after the day on which the drug was first 

marketed for drugs that were first 

marketed on or after April 1, 2013. (See 

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

determine the applicable base date AMP 

and, ultimately, to calculate the 

additional rebate for a quarter, we noted 

that a critical data point is the day on 

which the drug was first marketed. We 

refer to this date as a COD’s market date. 

Manufacturers are required to report to 

CMS the market date of each dosage 

form and strength of a COD for all of its 

CODs. 

We also noted that section 

1927(c)(2)(A)(ii)(II) of the Act expressly 

provides that the base date AMP 

quarter, with respect to a dosage form 

and strength of a drug, is established 

without regard to whether or not the 

drug has been sold or transferred to an 

entity, including a division or 

subsidiary of the manufacturer. As such, 

we noted that the market date of a drug 

is the date that the drug was first 

marketed, regardless of the entity that 

marketed the drug. Consistent with the 

statute, we noted that the market date of 

a drug is not and cannot be based on the 

first date upon which a subsequent 

manufacturer first markets the drug, but 

rather the earliest date on which the 

drug was first marketed, by any 

manufacturer. 

We also stated that a new market date 

cannot be established for a drug that is 

marketed under the same FDA-approved 

NDA number, ANDA number, or BLA 

license unless the drug is a new dosage 

form or strength because the statute 

requires an additional rebate amount 

based on the market date for each 

dosage form and strength of a COD.14

Thus, if a drug is purchased or 

otherwise acquired from another 

manufacturer, we noted that the market 

date should not change, and should be 

the same as the market date of the drug 

first marketed under the FDA-approved 

application. 

Because over the years, manufacturers 

have occasionally raised questions to 

CMS regarding the determination of a 

COD’s market date, base date AMP 

quarter, and base date AMP under 

various fact-driven scenarios, we 

proposed to clarify the term market date 

as used in the MDRP and to resolve 

potential questions related to these 

issues. Specifically, to assist 

manufacturers in reporting a more 

accurately calculated AMP, for the 

purposes of determining the base date 

AMP quarter and the base date AMP, we 

proposed that the market date be based 

on the first sale of the drug by any 

manufacturer rather than the date the 

drug was first available for sale by any 

manufacturer. We indicated that linking 

the market date determination to the 

date of the first sale, rather than the date 

the drug was first available for sale, 

would permit a manufacturer to 

establish and report a base date AMP 

based on actual sales data. As a result, 

the Unit Rebate Amount (URA) would 

also be calculated more accurately 

because actual sales would be available 

for reporting the AMP and calculating 

the URA. 

In other words, under our proposal, 

for purposes of determining the base 

date AMP quarter and thus the base date 

AMP, the market date is based upon the 

earliest date on which the drug was first 

sold, by any manufacturer. As noted 

previously in this section, our proposal 

also would codify the existing 

requirement that the market date for a 

COD is determined with respect to ‘‘any 

manufacturer.’’ 

We also stated that we understand 

that defining market date, for purposes 

of determining a COD’s base date AMP, 

based on the date the COD was first 

sold, may not completely eliminate a 

manufacturer’s need to make reasonable 

assumptions because the first sale(s) 

may include only AMP ineligible sales. 

For example, if all the sales during the 

first quarter of a drug’s availability are 

made to entities other than retail 

community pharmacies or wholesalers, 

and are not eligible for a 5i AMP 

calculation, then there may not be any 

AMP eligible sales to use for the 

calculation of AMP for that quarter. In 

such cases, a manufacturer may still 

need to use reasonable assumptions to 

report an AMP for that quarter. 

We proposed that sold means that the 

drug has been transferred (including in 

transit) to a purchasing entity. We 

requested comments on this topic to 

determine what qualifies as ‘‘sold’’ for 

the purposes of determining the market 

date of a drug, as we have also 

experienced manufacturers interpreting 

the term ‘‘sold’’ differently across the 

industry. 

We received public comments on the 

proposed definition of market date for 

the purposes of the MDRP. The 

following is a summary of the comments 

we received and our responses. 

Comment: We received numerous 

comments expressing support for the 

proposed definition of market date and 

one comment that noted no concerns 

with the proposed definition. 

Response: We appreciate the support 

of the proposed definition of market 

date. 

Comment: We received a comment 

about how our proposed definition of 

market date might intersect with the 

way Medicare proposes to determine the 

market date for the purposes of certain 

provisions under the Inflation 

Reduction Act (IRA). Commenters 

suggested that applying the same 


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definition across CMS would provide 

consistency across the agency. 

Response: CMS’ interpretation of 

terms and the applicability of those 

terms for programs other than the MDRP 

are outside the scope of this final rule. 

Comment: A few commenters 

suggested that we forgo setting forth a 

definition for market date and allow 

manufacturers to continue to make 

reasonable assumptions. 

Response: We disagree that we should 

forgo finalizing a definition for market 

date, because we believe a regulatory 

definition will bring additional 

consistency to the MDRP and will assist 

manufacturers in identifying the 

accurate market date. However, to the 

extent the definition does not address a 

specific situation, manufacturers may 

still need to make reasonable 

assumptions. As an example, we discuss 

the potential need for reasonable 

assumptions further in our response to 

comments regarding the proposed 

definition of ‘‘sold’’ within the 

definition of market date. 

Comment: One commenter questioned 

if the market date should be the same 

for all 11-digit NDCs within a 9-digit 

NDC family, even if an individual 11- 

digit NDC was introduced at a later 

time. 

Response: The market date is the 

same for all 11-digit NDCs within a 9- 

digit NDC family. The 9-digit NDC 

identifies a drug, dosage form, and 

strength. The Package Size Intro Date 

(that is, the date of introduction of a 

particular package size, identified by the 

last segment of the 11-digit NDC), may 

or may not coincide with the market 

date of the drug, dosage form, and 

strength, and therefore the date of 

introduction of a package size is not a 

factor in determining the market date of 

the drug, dosage form, and strength for 

the purposes of determining AMP and 

URA. To reiterate, the market date for 

the 9-digit NDC applies to every 11-digit 

NDC in the family and is tied to the 

drug, dosage form, and strength 

marketed under an FDA-approved 

application; it is not tied to the Package 

Size Intro Date for a particular 11-digit 

NDC. 

Comment: Several commenters 

discussed the effective date of the 

definition of market date. The 

commenters inquired whether the 

definition will be applied retroactively 

and suggested that retroactive 

application is not permitted and would 

be a burden on States and 

manufacturers. 

Response: The definition of market 

date adopted under this final rule 

applies as of the effective date of this 

final rule. Specifically, if a manufacturer 

previously reported a market date based 

on earlier program instructions that the 

market date was the earliest date the 

drug was available for sale by any 

manufacturer, they will not be required 

to change the market date to reflect the 

earliest date the drug was sold by any 

manufacturer. However, after the 

effective date of this final rule, 

manufacturers must use the earliest date 

the drug was sold as the market date for 

new drug products. 

The finalized definition of market 

date will change how manufacturers 

determine what date to use to determine 

the value to report; that is, 

manufacturers must use the date of first 

sale of the drug, rather than the date 

first available for sale, as of the effective 

date of this final rule. The finalized 

definition does not make any changes to 

the already existing requirement that the 

market date is linked to the drug, dosage 

form, and strength that was first 

marketed under an FDA-approved 

application. Consistent with the statute 

and prior CMS guidance, the market 

date of a specific drug, dosage form, and 

strength does not change, even if the 

specific drug, dosage form, and strength 

might be subsequently marketed under 

a different NDC or by a different 

manufacturer. Specifically, prior 

instructions and guidance given by CMS 

to assist manufacturers in determining 

the accurate market date to report to 

MDP specifies that the market date is 

the date the drug was first available for 

sale under the FDA-approved 

application number by any labeler. This 

was first included in Manufacturer 

Release #69 (May 13, 2005). It is also 

included in CMS’ NDRA Reference 

Guide, the MDP User Guide located 

within MDP, user manuals previously 

available in the older Drug Data 

Reporting for Medicaid (DDR) system, 

and in data definitions in CMS form 

367c. 

The finalized definition thus modifies 

one aspect of the previous guidance 

regarding market date by requiring that 

the relevant date be the date of first sale, 

while codifying CMS’ historical policy 

that the market date does not change if 

a drug is purchased or otherwise 

acquired from another manufacturer. 

We reiterate that this finalized 

definition does not change the 

requirement given in previous 

instructions to report the market date as 

the earliest date the drug was available 

for sale by any manufacturer. For 

example, if a manufacturer that acquires 

a drug instead reports the date that they 

first made the NDC available for sale, 

then that manufacturer would be 

expected to correct or request that the 

market date be corrected in the MDP 

system if they were not the earliest 

manufacturer to sell the drug. 

Manufacturer Release No. 113 (June 5, 

2020), available at https://

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

2020-06/mfr-rel-113_0.pdf also 

addresses the historic policy. That 

release states: 

‘‘As manufacturers evaluate their 

NDCs for compliance, they should also 

ensure they are accurately reporting the 

drug’s market date. As stated in section 

4.15 of the Medicaid Drug Rebate Data 

Guide for Labelers June 2019 (available 

within [MDP]), the market date for S, I, 

and N drugs marketed under an FDAapproved application (for example, 

BLA, NDA, ANDA) is the earliest date 

the drug was first marketed under the 

application number by any labeler. If a 

drug was purchased or otherwise 

acquired from another labeler, the 

market date should equal the market 

date of the original product. However, if 

a market date entered into [MDP] falls 

on a date that is earlier than 9/30/1990, 

[MDP] automatically populates the 

market date field with a value of 9/30/ 

1990 (because dates earlier than the start 

of the MDRP are not applicable). 

In addition to being a required 

product data field under the MDRP, the 

market date is also used to determine 

the quarter that is used to establish each 

drug’s Baseline Average Manufacturer 

Price (AMP). Because the Baseline AMP 

is used to calculate the additional rebate 

portion of the Unit Rebate Amount 

(URA) calculation, accurate market date 

reporting is imperative in order to 

ensure that correct Baseline AMP values 

are established. Prior to the 

implementation of the additional rebate 

for N drugs, manufacturers may have 

reported a market date that represented 

the date they began marketing the drug, 

rather than the earliest date that the 

drug was marketed under the 

application number by any labeler. If 

this is the case, a manufacturer must 

request a change from the incorrectly 

reported market date to the correct one 

to ensure that the correct Baseline AMP 

is accurately reflected in [MDP]. CMS 

addresses a manufacturer’s 

responsibility with respect to correct 

reporting of baseline data for a drug that 

was purchased from another 

manufacturer in Manufacturer Release 

No. 90 and Manufacturer Release No. 

101.’’ 

In order to request corrections to the 

market date, manufacturers should 

follow the instructions at https://

www.medicaid.gov/medicaid/ 

prescription-drugs/medicaid-drugrebate-program/medicaid-drug-rebateprogram-change-request/index.html. 


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We also note that MSIAA added civil 

money penalties and provided 

enforcement authority if a manufacturer 

provides false information related to 

drug product information, which, as 

explained at section F of this final rule, 

includes the market date. Penalties that 

were added by MSIAA take effect as of 

the effective date of MSIAA. However, 

if correcting a misreported market date 

leads to changes in a drug’s URA, 

manufacturers may be required to 

reconcile prior rebate payments with the 

States. 

Comment: In response to a request for 

comments about how to determine what 

qualifies as sold for the purposes of 

determining the market date of a drug, 

we received several suggestions. Several 

commenters suggested CMS allow a 

manufacturer to use reasonable 

assumptions. Reasons provided for 

using reasonable assumptions included 

that manufacturers may identify their 

sale date based on commercial 

agreements, business practices, date of 

payment, date of invoice, and other 

determining factors. Other commenters 

suggested that a drug should be 

considered sold on the date it is 

transferred to a purchasing entity, or 

that it should be based on a customer 

invoice date. 

Another commenter suggested that a 

sale only occurs if the purchaser is 

AMP-eligible. 

Response: We agree that different 

manufacturers may record sale dates 

differently, based on their business 

practices. Therefore, although we 

proposed a definition for the term sold 

and requested comments regarding such 

a definition, we will not define sold as 

it applies to the definition of market 

date and will permit manufacturers to 

use reasonable assumptions as to the 

date a sale has occurred. However, this 

does not mean that a manufacturer 

should report a market date as the date 

they first sold the drug when another 

manufacturer first sold the drug, dosage 

form, and strength under the FDAapproved application number at an 

earlier date, as doing so would be 

inconsistent with our previous guidance 

and the requirements of section 1927 of 

the Act. Rather, the manufacturer needs 

to report the market date as the earliest 

date the drug was available for sale by 

any manufacturer. 

We disagree that only sales to 

purchasers that are AMP-eligible should 

be considered when determining the 

date on which the drug was first sold. 

The first date of sale, and therefore the 

market date, does not depend on what 

entity is making the purchase. 

After consideration of public 

comments on this provision, we are 

finalizing the definition of market date 

as proposed. In the proposed, rule we 

requested comments on what is meant 

by sold and what qualifies as being sold, 

and we incorporated the comments we 

received into our review of the 

definition of market date. We are not 

creating nor finalizing a definition of 

sold for the purposes of determining the 

market date of a drug. 

f. Proposal To Modify the Definition of 

Noninnovator Multiple Source Drug 

(§ 447.502) 

As discussed previously in the 

proposed rule, section 6(c) of MSIAA 

included a number of amendments to 

statutory definitions in section 1927 of 

the Act. Generally, those statutory 

amendments were discussed in the 2020 

final rule (85 FR 87000, 87032) where 

the regulatory definitions of multiple 

source drug, innovator multiple source 

drug, and single source drug were 

amended consistent with MSIAA. 

However, although we made conforming 

changes to the regulatory definition of 

an I drug in the 2020 final rule, because 

MSIAA did not expressly amend the 

statutory definition of an N drug, we did 

not consider whether any changes to the 

regulatory definition of an N drug were 

necessary at that time. 

In the proposed rule, after further 

evaluation, we proposed to amend the 

regulatory definition of an N drug to 

conform it to the regulatory definition of 

an I drug. We noted that when we 

established a regulatory definition of an 

N drug in the 2007 final rule, we did so 

to distinguish between multiple source 

drugs approved under an ANDA 

(generally referenced as N drugs) and 

multiple source drugs approved under 

an NDA (that is, I drugs). Both I drugs 

and N drugs are generally multiple 

source drugs. The main difference 

between the definitions is the authority 

under which the drug is marketed. 

Generally speaking, I drugs are 

marketed under an approved NDA, and 

N drugs are marketed under an 

approved ANDA or are unapproved. 

We noted that section 

1927(k)(7)(A)(iii) of the Act, which was 

not expressly amended or clarified by 

MSIAA, defines a noninnovator 

multiple source (N) drug as a multiple 

source drug that is not an I drug. As 

noted, MSIAA amended the statutory 

definition of an I drug by removing 

‘‘was originally marketed’’ and adding 

‘‘is marketed,’’ and we therefore made 

conforming changes to the regulatory 

definition of an I drug in the 2020 final 

rule. However, as noted in the proposed 

rule, when we modified the regulatory 

definition of an I drug to replace ‘‘was 

originally marketed’’ with ‘‘is 

marketed,’’ we neglected to make a 

corresponding change to the definition 

of an N drug to maintain the clear 

distinction between an I drug, which is 

marketed under an NDA, and an N drug, 

which is not marketed under an NDA. 

We noted that paragraph (3) of the 

regulatory definition of an N drug, 

codified at § 447.502, continues to refer 

to a COD that entered the market before 

1962 that was not originally marketed 

under an NDA. 

To maintain and conform with the 

statute’s clear distinction between an I 

drug and an N drug, we therefore 

proposed to amend paragraph (3) of the 

definition of an N drug at § 447.502 by 

removing ‘‘was not originally marketed’’ 

and inserting in place ‘‘is not 

marketed.’’ As amended, the regulatory 

definition of an N drug would, in 

relevant part, have the same structure as 

the statutory and regulatory definitions 

of an I drug and distinguish between a 

multiple source drug approved under an 

ANDA (that is, an N drug) and a 

multiple source drug approved under an 

NDA (that is, an I drug) based on the 

authority under which the drug is 

marketed, not how the drug was 

originally marketed. 

Accordingly, we proposed to amend 

§ 447.502 by revising paragraph (3) of 

the definition of an N drug to read, ‘‘A 

covered outpatient drug that entered the 

market before 1962 that is not marketed 

under an NDA.’’ We believe this to be 

a technical correction to the regulatory 

text. 

We received public comments on this 

proposal. The following is a summary of 

the comments we received and our 

response. 

Comment: One commenter stated that 

the group they represent did not report 

concerns with the proposed change in 

definition of noninnovator multiple 

source drug. Another commenter 

supported CMS’ efforts to further clarify 

key program definitions, including the 

definition of noninnovator multiple 

source drug. 

Response: We appreciate the support 

of the proposed definition of 

noninnovator multiple source drug. 

After consideration of public 

comments, we are finalizing the 

definition of noninnovator multiple 

source drug as proposed. 

g. Proposal To Define Vaccine for 

Purposes of the MDRP Only (§ 447.502) 

In the proposed rule, we included a 

provision that would define vaccine for 

the purpose of operating the MDRP. As 

background, we noted that States that 

opt to cover prescribed drugs under 

section 1905(a)(12) of the Act in their 

State plan are required to do so 


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15While section 1928(h) of the Act defines 

‘‘pediatric vaccine’’ and ‘‘qualified pediatric 

vaccine,’’ those definitions do not speak to the 

actions of a vaccine in the human body and how 

and when it is used, and therefore do not help CMS 

determine when a product should count as a 

vaccine (as opposed to a drug) for purposes of the 

Medicaid Drug Rebate Program. 

16Beginning October 1, 2023, under section 

11405 of the Inflation Reduction Act of 2022, States 

were required to cover approved adult vaccines 

recommended by the ACIP, and their 

administration, for many adults enrolled in 

Medicaid and all adults enrolled in CHIP, without 

cost sharing. States are required to cover COVID– 

19 vaccines and COVID–19 vaccine administration 

through September 30, 2024, for all CHIP 

beneficiaries and nearly all Medicaid beneficiaries. 

For more information on Medicaid and CHIP 

vaccination coverage, including on what types of 

CDC/ACIP recommendations are relevant to that 

coverage, see https://www.medicaid.gov/sites/ 

default/files/2023-06/sho23003.pdf. 

17https://www.fda.gov/vaccines-blood-biologics/ 

vaccines/vaccines-licensed-use-united-states. 

18https://www.govinfo.gov/content/pkg/FR-2023- 

05-26/pdf/2023-10934.pdf. 

consistent with section 1927 of the Act, 

as set forth at section 1902(a)(54) of the 

Act. 

Section 1927(k)(2)(B) of the Act 

specifically excludes vaccines from the 

definition of COD for purposes of the 

MDRP, and this provision is codified in 

paragraph (1)(iv) of the regulatory 

definition of COD at § 447.502. We 

noted in the proposed rule that section 

1927 of the Act does not define vaccine, 

nor is there a relevant definition of 

vaccine in Title XI, XVIII, XIX, or XXI 

of the Act (applicable to Medicare, 

Medicaid, and CHIP) that speaks to the 

specific kinds of biological products 

that qualify as vaccines in terms of their 

actions in the human body and how and 

when they are used.15 Moreover, we 

noted that we are not aware that any 

authorizing statutes for any other 

Department of Health and Human 

Services agencies include such a 

statutory definition of the term vaccine. 

Therefore, we proposed a regulatory 

definition of vaccine for the purposes of 

the MDRP to specify which products are 

considered vaccines and thus excluded 

from the definition of COD.16

Specifically, we proposed to define 

vaccine at § 447.502 for the specific 

purposes of the MDRP, so that 

manufacturers understand which 

products are considered vaccines under 

the MDRP and are excluded from the 

definition of COD, and not subject to 

MDRP rebate liability. We proposed that 

the definition would be applicable only 

to the MDRP and would not be 

applicable to any other agencies or 

agency program implementation, 

including FDA and CDC. We stated that 

the definition will only be applicable to 

the HRSA 340B Program to the extent 

the definition defines what drug 

products are CODs but otherwise will 

have no applicability. We also stated 

that the definition of vaccine would not 

apply under any title XIX statutory 

provisions other than section 1927(k)(2), 

or to separate CHIPs operating under 

§ 457.70(a)(1) and (d), or for purposes of 

the VFC Program. However, we noted 

that the definition will apply to the 

MDRP for purposes of Medicaid 

expansion CHIPs, under § 457.70(c)(2). 

We stated that the proposed definition 

would also not apply with respect to 

any applicable Federal or State 

requirements to cover immunizations 

for Medicaid beneficiaries. 

We proposed to define vaccine to 

mean a product that is administered 

prophylactically to induce active, 

antigen-specific immunity for the 

prevention of one or more specific 

infectious diseases and is included in a 

current or previous FDA published list 

of vaccines licensed for use in the 

United States. To meet the definition of 

a vaccine for the purposes of the MDRP, 

we proposed that a product must be 

administered prophylactically—that is, 

to prevent a disease and not to treat a 

disease—because we do not interpret 

the statutory exclusion of vaccines from 

the definition of COD to exclude drugs 

or biologicals that treat a disease. We 

also proposed that a vaccine must be 

administered to induce active, antigenspecific immunity because that is a 

characteristic of preventive vaccines. 

Finally, we proposed to limit the 

definition of vaccine to those products 

that satisfy the conditions of being 

administered prophylactically, to 

prevent a disease, and induce active 

antigen-specific immunity, and that also 

appear on a current or previous list of 

vaccines compiled by FDA. FDA 

publishes a list of vaccines licensed for 

use in the United States.17 As FDA is 

the agency responsible for licensing 

vaccines, we stated our belief that if a 

product satisfying the previously 

described conditions appears on this 

list, it should be treated as a vaccine for 

the purposes of the MDRP. 

We sought comment on whether the 

proposed definition of vaccine, for 

purposes of the MDRP only, 

appropriately distinguishes between 

preventive vaccines (which would 

satisfy the definition of vaccine and, 

therefore, not satisfy the definition of a 

COD and would not be subject to the 

requirements of section 1927 of the Act), 

and therapeutic vaccines (which would 

not satisfy the definition of vaccine and 

therefore could satisfy the definition of 

a COD and thus be subject to the 

requirements of section 1927 of the Act). 

Additionally, while we proposed to 

limit this definition to the MDRP, we 

sought comment on whether this 

definition might result in indirect 

consequences for Medicaid benefits 

other than the prescribed drugs benefit. 

We also requested comment about the 

consequences for Medicaid of ACIP’s 

recommending immunization with a 

product that would not qualify as a 

vaccine under this definition. 

We appreciate the thoughtful 

comments we received on this issue. At 

this time, we are not finalizing the 

proposed regulatory definition. We are 

continuing to review the input provided 

by commenters on the proposed 

definition, which may inform future 

rulemaking on this topic. 

D. Proposal To Account for Stacking 

When Determining Best Price— 

(§ 447.505) 

In the proposed rule, we proposed 

revisions to the regulations for the 

determination of best price at 

§ 447.505(d)(3) to make clearer that the 

manufacturer must adjust the best price 

for a drug for a rebate period if 

cumulative discounts, rebates, or other 

arrangements to best price eligible 

entities subsequently adjust the prices 

available from the manufacturer, and 

that those discounts, rebates, or other 

arrangements must be ‘‘stacked’’ for a 

single transaction to determine a final 

price realized by the manufacturer for a 

drug. 

We described that section 

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

‘‘best price’’ to mean with respect to a 

single source drug 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 new 

drug application approved under 

section 505(c) of the Federal Food, Drug, 

and Cosmetic Act), 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, subject to certain exceptions and 

special rules. The implementing 

regulations for the determination of best 

price are at § 447.505. Consistent with 

this provision, in 2007, CMS 

promulgated § 447.505(e)(3) (currently 

§ 447.505(d)(3)) to make clear that in 

order to reflect market transactions, the 

best price for a rebate period should be 

adjusted by the manufacturer if 

cumulative discounts or other 

arrangements subsequently adjust the 

prices actually realized.18

In the 2016 COD final rule, in 

response to a comment, CMS further 


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19https://www.govinfo.gov/content/pkg/FR-2016- 

02-01/pdf/2016-01274.pdf. 

20https://oig.hhs.gov/documents/evaluation/ 

3188/OEI-12-17-00130-Complete%20Report.pdf. 

clarified that a manufacturer is 

responsible for including all price 

concessions that adjust the price 

realized by the manufacturer for the 

drug in its determination of best price. 

CMS’ response provided a specific 

example in which two best price eligible 

entities each receive a rebate or 

discounts for the same drug transaction 

as it moves through the supply chain, 

such as a rebate paid by a manufacturer 

to a PBM where such rebate is designed 

to adjust prices at the retail or provider 

level, and a discount to a retail 

community pharmacy. Each transaction 

adjusts the final price realized by the 

manufacturer for the sale of that drug. 

That is, all discounts, rebates, and price 

concessions related to that transaction, 

which adjust the ultimate price realized 

by the manufacturer, should be 

considered in the manufacturer’s final 

price of that drug when determining the 

best price to be reported.19

We indicated that we have considered 

stacking, as stated in the preamble to the 

2016 COD final rule, as consistent with 

current § 447.505(d)(3), which requires 

that if cumulative discounts 

subsequently adjust the price available 

from the manufacturer, they should be 

included in the best price calculation. 

We indicated that the proposed 

revisions to the regulatory text at 

§ 447.505(d)(3) would make clearer that 

manufacturers must stack all applicable 

price concessions that they offer on a 

single sale of a covered outpatient drug, 

including discounts or rebates provided 

to more than one best price eligible 

entity. 

We received comments both 

supporting and opposing the proposed 

revisions to § 447.505(d)(3). Based on 

these comments, we are not finalizing 

the proposal at this time. Instead, we are 

going to pursue the collection of 

additional information from 

manufacturers related to best price 

stacking methodologies to inform future 

rulemaking. We will continue to 

consider the comments regarding 

stacking during this time. 

While we believe that some 

manufacturers are already using some 

type of stacking methodology in 

determining their best price, we believe 

it important to further understand the 

various ways that manufacturers are, in 

fact, determining their best price and 

the extent they are using a stacking 

methodology in doing so. We 

understand from a 2019 OIG report 

(Reasonable Assumptions in 

Manufacturer Reporting of AMPs and 

Best Prices) 20 that about half of the 

manufacturers responding to the survey 

indicated that they did stack their price 

concessions in determining best price, 

but several indicated that they wanted 

additional guidance from CMS. 

We intend to undertake a separate 

collection of information from 

manufacturers to help us better 

understand the areas in which 

additional guidance might be useful 

related to stacking methodologies. The 

information collection would be 

intended to ascertain whether a 

manufacturer implements any form of 

stacking and, if so, how that stacking is 

performed. 

We acknowledge that we may not 

have all the information necessary to 

assess how stacking impacts 

manufacturers’ reporting of best prices. 

Collecting this additional information 

will assist the agency in its 

consideration of the stacking issue and 

the comments submitted and may 

inform future rulemaking. 

E. Proposal To Rescind Revisions Made 

by the December 31, 2020 Final Rule To 

Determination of Best Price (§ 447.505) 

and Determination of Average 

Manufacturer Price (AMP) (§ 447.504) 

Consistent With Court Order 

In the proposed rule, we included a 

provision that would withdraw changes 

to our regulations found at §§ 447.504 

and 447.505, based on a court order. As 

background, on June 19, 2020, CMS 

proposed regulations to address the 

effect of PBM accumulator adjustment 

programs on best price and AMP 

calculations (85 FR 37286) in relation to 

purported manufacturer financial 

assistance payments (that is, financial 

assistance payments in the form of 

copay coupons to patients for purposes 

of paying the patient cost obligation of 

certain drugs) by instructing 

manufacturers on how to consider the 

impact of such programs when 

determining best price and AMP for 

purposes of the MDRP. CMS proposed 

that the exclusions for manufacturers’ 

financial assistance payments ‘‘apply 

only to the extent the manufacturer 

ensures the full value of the assistance 

or benefit is passed on to the consumer 

or patient’’ (85 FR 37299). The 2020 

final rule finalized this proposed change 

and delayed the effective date of the 

change until January 1, 2023, to ‘‘give 

manufacturers time to implement a 

system that will ensure the full value of 

assistance under their manufacturersponsored assistance program is passed 

on to the patient’’ (85 FR 87053). 

In May 2021, the Pharmaceutical 

Research and Manufacturers of America 

(PhRMA) filed a complaint against the 

Secretary, requesting that the court 

vacate these revisions to § 447.505(c)(8) 

through (11) (85 FR 87102 and 87103), 

as set forth in the 2020 final rule. On 

May 17, 2022, the United States District 

Court for the District of Columbia ruled 

in favor of the plaintiff and ordered that 

the applicable provisions of the 2020 

final rule be vacated and set aside. 

In response to this court order, we 

proposed in this rule to withdraw the 

applicable changes made to the best 

price regulation and to also withdraw 

the corresponding changes to the AMP 

regulation to apply consistent rules for 

determining best price and AMP. Thus, 

in making this proposal, we suggested 

the removal of the language added to 

these sections as part of the 2020 final 

rule: §§ 447.504(c)(25) through (29) and 

(e)(13) through (17) and 447.505(c)(8) 

through (12). See 85 FR 87102 and 

87103. Specifically, we proposed the 

removal of the phrase ‘‘the manufacturer 

ensures’’ from these provisions. As a 

result, these regulations would revert 

back to the language that has been in 

place since 2016. 

We received public comments on this 

proposal. The following is a summary of 

the comments we received and our 

responses. 

Comment: A few commenters 

expressed support for the proposal to 

rescind the revisions made by the 2020 

final rule because they were supportive 

of patient assistance programs and were 

concerned that the requirement that 

AMP and best price include such price 

concessions would have been 

detrimental to patient assistance 

programs (for example, manufacturer 

coupons) if adopted. Many commenters 

also suggested CMS search for 

alternative regulatory mechanisms to 

reduce impacts caused by the transfer of 

the value of patient assistance programs 

to payers through accumulator programs 

and consider ways to correctly account 

for such programs in Medicaid AMP 

and best price reporting for MDRP. They 

also emphasized that CMS should 

continue to explore ways to minimize 

the harmful impact of manufacturer 

coupons on beneficiaries and health 

care costs, specifically researching the 

effects of induced demand, unnecessary 

spending, and the role they play in the 

price manufacturers set for their drugs. 

Response: We thank the commenters 

for sharing their views. Per the court 

decision, CMS is rescinding the 

applicable revisions made by the 2020 

final rule. We will continue to explore 

other ways to protect consumers from 

accumulator programs that leave 


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vulnerable patient populations with a 

significant cost-sharing burden once a 

patient exhausts a manufacturer patient 

benefit program. 

Comment: A commenter requested 

that CMS rescind the portion of the 

2021 Notice of Benefit and Payment 

Parameters (NBPP) final rule that 

enables plans to not count manufacturer 

cost-sharing assistance toward patients’ 

annual cost-sharing limits, thereby 

effectively enabling the use of PBM 

accumulator programs, which are 

harmful to patients. 

Response: We thank the commenter 

but note that this request is outside of 

the scope of this final rule. 

Given the direction by the court’s 

ruling to vacate and set aside the 

changes made by the 2020 final rule, we 

are finalizing as proposed to remove the 

language added to these sections as part 

of the 2020 final rule: §§ 447.504(c)(25) 

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

and 447.505(c)(8) through (12). 

F. Drug Classification; Oversight and 

Enforcement of Manufacturer’s Drug 

Product Data Reporting Requirements— 

Proposals Related to the Calculation of 

Medicaid Drug Rebates and 

Requirements for Manufacturers 

(§§ 447.509 and 447.510) 

1. Medicaid Drug Rebates (MDR) and 

Penalties (§ 447.509) 

In the proposed rule, we included a 

new process to identify, notify and 

correct a manufacturer’s drug category 

misclassifications. As background, we 

noted that section 6 of MSIAA, titled 

‘‘Preventing the Misclassification of 

Drugs Under the Medicaid Drug Rebate 

Program,’’ amended sections 1903 and 

1927 of the Act to clarify the definitions 

for multiple source drug, single source 

drug, and innovator multiple source 

drug, and to provide the Secretary with 

additional compliance, oversight, and 

enforcement authorities regarding the 

manufacturers’ reporting of drug 

product and pricing information, which 

includes the appropriate classification 

of a drug. Drug classification refers to 

how a drug should be classified—as a 

single source (S), innovator multiple 

source (I), or noninnovator multiple 

source drug (N)—for the purposes of 

determining the correct rebates that a 

manufacturer owes the States. We noted 

that when manufacturers misclassify 

their drugs in the rebate program, it can 

result in manufacturers paying rebates 

to States that are different than those 

that are supported by statute and 

regulation, and in some cases, can result 

in the manufacturer paying a lower perunit rebate amount to the States. 

We noted that specifically, section 

1927(c)(4)(A) of the Act, ‘‘Recovery of 

Unpaid Rebate Amounts due to 

Misclassification of Drugs,’’ was added 

to the statute to provide new authorities 

to the agency to identify and correct a 

manufacturer’s misclassification of a 

drug, as well as impose other penalties 

on manufacturers that fail to correct 

their misclassifications. In general, a 

misclassification in the MDRP occurs 

when a manufacturer reports and 

certifies its covered outpatient drug 

under a drug category, or uses drug 

product information, that is not 

supported by the statutory and 

regulatory definitions of S, I, or N. A 

misclassification can also occur when a 

manufacturer’s drug is appropriately 

classified, but the manufacturer is 

paying rebates at a different amount 

than required by the statute, or where 

the drug manufacturer’s certified drug 

product information for the COD is also 

inconsistent with statute and regulation. 

Although much of this law is selfimplementing, we proposed a series of 

regulatory amendments at §§ 447.509 

and 447.510 to implement and codify 

the statutory changes in regulation. In 

§ 447.509, we proposed to include a 

new paragraph (d), ‘‘Manufacturer 

misclassification of a covered outpatient 

drug and recovery of unpaid rebate 

amounts due to misclassification and 

other penalties,’’ to implement 

additional penalty and compliance 

authorities outlined in section 6 of 

MSIAA, which amended sections 1903 

and 1927 of the Act. 

MSIAA also amended the Act to 

clarify that the reporting of false drug 

product information and data related to 

false drug product information would 

also be subject to possible civil 

monetary penalties (CMPs) by the HHS 

Office of the Inspector General (OIG), 

and to provide specific new authority to 

the Secretary to issue CMPs related to 

knowing misclassifications by drug 

manufacturers of drug product or 

misreported information. We clarified in 

the proposed rule that these new OIG 

authorities were not a subject of this 

rulemaking. 

We also noted that, under MSIAA, if 

a manufacturer fails to correct the 

misclassification of a drug in a timely 

manner after receiving notification from 

the agency that the drug is misclassified, 

in addition to the manufacturer having 

to pay past unpaid rebates to the States 

for the misclassified drug if applicable, 

the Secretary can take any or all of the 

following actions: (1) correct the 

misclassification, using drug product 

information provided by the 

manufacturer, on behalf of the 

manufacturer; (2) suspend the 

misclassified drug, and the drug’s status 

as a covered outpatient drug under the 

manufacturer’s national rebate 

agreement, and exclude the 

misclassified drug from FFP (correlating 

amendments to section 1903 of the Act); 

and, (3) impose CMPs for each rebate 

period during which the drug is 

misclassified subject to certain 

limitations. 

The Act expressly provides that the 

imposition of such penalties may be in 

addition to other remedies, such as 

termination from the MDRP, or CMPs 

under Title XI. 

a. Summary of Misclassification and 

General Comments Relating to Proposed 

Regulation (§ 447.509(d)(1) Through (4)) 

We proposed in new paragraphs (d)(1) 

through (4) of § 447.509, requirements 

relating to the process by which the 

agency would identify when a 

misclassification of a drug has occurred 

in MDRP, notify a manufacturer that we 

have determined that a drug is 

misclassified in MDRP, clarify the 

manufacturer’s responsibility to pay 

past rebates due to the misclassification, 

and indicate the penalties that may be 

imposed on the manufacturer. 

We received several general public 

comments on these proposals. The 

following is a summary of the general 

comments we received and our 

responses. 

Comment: Some commenters 

provided overall support of the 

misclassification sections of the 

proposed rule in § 447.509(d), as they 

believe it would lead to more accurate 

and consistent manufacturer reporting 

and transparency, allow CMS to be able 

to correct drug misclassifications, and 

penalize manufacturers in effective 

ways if they continue to misclassify 

their drugs and not correct their 

misclassifications. Other commenters 

expressed some level of support but 

raised concerns about using suspension 

of the drug from the MDRP as the tool 

for compliance with the new 

misclassification requirements, or about 

the feasibility of the timelines. 

Response: We thank the commenters 

for their support and address the 

specific concerns in more detail later in 

this section. 

Comment: Many commenters opposed 

various components of the proposed 

enforcement options under MSIAA for 

those manufacturers that have 

misclassified their drugs and continue 

to misclassify their drugs. The 

commenters stated that these proposed 

enforcement regulations are overly 

broad, and CMS lacks statutory 

authority to propose them. 


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Response: We appreciate the 

comments and address the specific 

concerns in more detail with the other 

comments. However, we note that the 

proposed regulations align with the 

requirements in the applicable statutes, 

which gives CMS statutory authority to 

implement these regulations. 

Comment: A few commenters urged 

CMS to explicitly state in the final rule 

that manufacturers who fail to provide 

340B discounts during the suspension 

of the drug due to the misclassification 

of the COD will face civil monetary 

penalties. The commenters also seek 

clear guidance on coverage and payment 

for 340B-eligible products in relation to 

Medicaid during such suspensions of 

the drug due to misclassification. 

Response: CMPs for not providing 

340B pricing are outside the scope of 

the rule and will not be addressed. 

However, regarding coverage and 

payment for 340B-eligible products 

during the period of the suspension of 

the COD for misclassification, 

manufacturers must still provide drugs 

through the 340B Program pursuant to 

42 U.S.C. 256b, and 340B covered 

entities may dispense those medications 

to eligible patients. To the extent the 

patients who receive these drugs 

acquired under the 340B Program are 

Medicaid beneficiaries, FFP would not 

be available for the claims for these 

drugs as Medicaid FFP is not available 

for the misclassified drug or drugs of 

this manufacturer during the period of 

the suspension. States could opt to 

cover those claims through State-only 

funds. 

Comment: A few commenters 

suggested that MSIAA can only be 

applied prospectively and any efforts to 

deem a product as misclassified or 

impose any penalties retrospectively 

cannot be done. Specifically, several 

commenters suggested that no 

misclassification can apply prior to 

April 18, 2019, the effective date of 

MSIAA. 

Response: The provisions of 42 CFR 

447.509(d) become effective on the 

effective date of this final rule. 

However, there is no provision in the 

statute which would exempt 

manufacturers from their responsibility 

of correcting their misclassification from 

before 2019. Manufacturers have always 

been responsible for accurate reporting 

of the classification of their drug and 

must certify to the completeness and 

accuracy of that reporting when 

submitting data to CMS to comply with 

statute and regulation, as well as the 

terms of the NDRA. MSIAA provided 

new authorities to CMS to enforce this 

requirement with respect to drug 

misclassification, including the ability 

to identify and correct a manufacturer’s 

misclassification as well as impose 

other penalties on manufacturers that 

fail to correct their misclassifications. 

CMS already provided guidance to 

manufacturers regarding MSIAA in 

Manufacturer Release #113 on June 5, 

2020. This rule provides additional 

regulatory support to that guidance. 

Comment: A commenter expressed 

concern that the proposed rule 

inappropriately attempts to end-run a 6- 

year statute of limitations. The 

commenter stated that CMS is 

attempting to apply penalties to 

manufacturers for drug category 

misclassifications that occurred for 

periods prior to 2Q2016. As such, the 

commenter stated that such claims 

would likely be time-barred today. The 

commenter also stated that what the 

commenter alleged to be CMS’ failure to 

act on narrow exception request appeals 

in a timely manner should not result in 

the application of the civil monetary 

penalty process to drugs that may have 

been misclassified during such time 

periods. 

The commenter suggested that CMS 

consider drug classification 

assumptions made by manufacturers in 

periods prior to 2Q2016 to have been 

made on their merits (to the extent not 

already time-barred), without 

summarily rejecting them because they 

were made prior to the establishment of 

the ‘‘narrow exception’’ process. In 

particular, the commenter suggested 

that products granted narrow exception 

status should be assumed to be ‘‘N’’ 

drugs prior to 2Q2016, consistent with 

reasonable assumptions made 

contemporaneously by the 

manufacturer. 

Response: The development of a 

narrow exception process in the 2016 

COD final rule, 81 FR 5170 (February 1, 

2016) did not change the MDRP 

manufacturer drug classification 

requirements prior to the development 

of that process. In addition, CMS 

provided guidance to manufacturers 

regarding MSIAA in Manufacturer 

Release #113 on June 5, 2020. 

Comment: A couple of commenters 

requested that CMS clarify that no 

manufacturer will be penalized if the 

manufacturer has an active and pending 

narrow exception request and/or appeal. 

Some suggested CMS should revise the 

definition of misclassification to make 

clear that the definition does not 

include a COD for which a manufacturer 

has submitted a narrow exception 

request but has not received a written 

response from CMS regarding the 

disposition of that narrow exception 

request. 

Response: We agree that no penalty 

would apply until CMS completes the 

narrow exception process. We do not 

believe this needs to be addressed in the 

regulation, and no change to the 

definition of misclassification is needed. 

b. Definition of Misclassification— 

§ 447.509(d)(1) 

We proposed to define what 

constitutes a misclassification in 

paragraph (d)(1). As proposed at 

§ 447.509(d)(1)(i), a misclassification in 

the MDRP occurs when a manufacturer 

reports and certifies to the agency its 

drug category or drug product 

information related to a covered 

outpatient drug that is not supported by 

applicable statute or regulation. 

We also proposed in 

§ 447.509(d)(1)(ii) that a 

misclassification includes a situation 

where a manufacturer has correctly 

reported and certified its drug 

classification as well as its drug product 

information for a COD but is paying 

rebates to States at a level other than 

that supported by statute and regulation 

applicable to the reported and certified 

data. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Several commenters stated 

that the definition of misclassification 

should only apply to the drug product’s 

classification under the MDRP and that 

MSIAA does not authorize CMS to 

include any other misreported or 

inaccurate drug product information 

that may have been reported by the 

manufacturer in the definition of 

misclassification. 

These commenters also expressed 

concern about the phrase ‘‘any other 

information CMS deems necessary’’ in 

the drug product information definition. 

They stated that what they called this 

‘‘open-ended’’ phrase may result in the 

inclusion of drug product information 

in the definition of misclassification to 

exceed the authority granted in MSIAA. 

They suggested ‘‘drug product 

information’’ should be deleted from 

447.509(d), but if not, the ‘‘open-ended’’ 

language in the definition of drug 

product information should be removed. 

Response: We believe that drug 

product information can be included in 

the definition of misclassification. The 

statute does not define drug 

misclassification, and we believe the 

Congress intended the term 

misclassification to include any 

incorrect drug product information 

reported by the manufacturer, including 

but not limited to inaccurate drug 

category. Section 1927(c)(4)(B)(ii)(I) of 


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the Act provides the Secretary with the 

authority to use drug product 

information reported by a manufacturer 

to correct a drug misclassification. 

Moreover, section 1927(b)(3)(C)(iii) of 

the Act subjects a manufacturer to CMPs 

if it misclassifies a COD, such as by 

knowingly submitting incorrect drug 

product information, or if the 

manufacturer pays rebates at a level 

other than that associated with the 

drug’s classification. This provision 

clarifies that incorrect drug product 

information constitutes a 

misclassification under section 

1927(b)(3) of the Act. Through statutory 

construction, it implies that incorrect 

drug product information in section 

1927(c)(4) of the Act is considered a 

misclassification as well. Thus, we are 

including drug product information in 

the definition of misclassification. 

As addressed in the drug product 

information section, we agree that the 

phrase ‘‘any other information CMS 

deems necessary’’ should be removed 

from the drug product information 

definition. Therefore, we have removed 

this phrase in this final rule. 

Comment: One commenter noted that 

the proposed definition omits any 

mention of the extent to which the 

manufacturer had to have knowledge of 

incorrect drug product information 

reporting that is necessary to give rise to 

the sanctions contemplated by the 

statute. They suggested that the 

regulation should clearly require that 

the manufacturer knowingly 

misclassified the drug. 

Response: Section 1927(d)(4) of the 

Act expressly states that a drug 

misclassification can occur without 

regard to whether the manufacturer 

knowingly made the misclassification or 

should have known that the 

misclassification would be made. It is 

the legal responsibility of the 

manufacturer to report and certify the 

correct classification of its covered 

outpatient drugs as well as the drug 

product information associated with 

those covered outpatient drugs. 

c. Manufacturer Notification by the 

Agency of Drug Misclassification— 

§ 447.509(d)(2) 

We proposed at § 447.509(d)(2) that if 

the agency makes a determination of a 

misclassification, the agency would 

send a written and electronic notice to 

the manufacturer, which may include a 

notification that past rebates are due. 

The manufacturer would have 30 

calendar days from date of the notice to 

submit the corrected drug product 

information as well as any additional 

drug product and pricing information 

necessary to calculate its rebate 

obligations to the States. For example, if 

a manufacturer misclassified a drug as 

an N when it should have been an S or 

I, then the manufacturer must submit 

the correct drug category as well as the 

drug’s ‘‘best price’’ data for the period 

or periods during which it was 

misclassified because that data is 

required to calculate rebate obligations 

applicable to S or I drugs, but not N 

drugs. Once the information is changed 

in the MDP system, the manufacturer 

must certify the data. 

Upon notification by CMS that the 

manufacturer’s information was 

updated in the system, we proposed that 

the manufacturer certify the applicable 

price and drug product data. We 

proposed that the manufacturer must 

correct the misclassification and 

respond to the agency’s request to 

certify the information in the system 

within that same timeline of 30 calendar 

days from the date of the original 

notification to the manufacturer of the 

misclassification. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Several commenters raised 

concerns that the proposal regarding the 

30-day period for manufacturers to 

correct misclassification is unreasonable 

and exposes manufacturers to 

enforcement action with potential 

severe consequences and request that 

CMS allow manufacturers more than 30 

days post notification to provide and 

certify data. One commenter suggested 

that CMS should liberally provide for 

reasonable extensions to accommodate 

complex reclassification and payment 

obligations. 

Response: We believe that the 30-day 

period is sufficient in most 

circumstances for manufacturers to 

correct and certify a data field. 

Misclassification can affect the amount 

of rebates owed by manufacturers to 

States, so it is important that it be 

addressed in a timely manner. In other 

circumstances, manufacturers can 

informally request extensions. 

Accordingly, if there are extenuating 

circumstances that result in the 

manufacturer not being able to make the 

change within 30 days, they may 

request an informal extension of this 

deadline as well. 

Comment: Some commenters urged 

CMS to adopt into the regulation a 

dispute resolution process because they 

believe it is unfair that CMS can solely 

determine if a misclassification 

occurred. Other commenters suggested a 

collaborative process or a process by 

which manufacturers are afforded the 

opportunity to investigate and validate 

suspected misclassifications with the 

Agency before the start of the corrective 

action. They recommend that the 30-day 

correction period start once the 

manufacturer has validated with the 

Agency that a correction is needed. 

Response: This misclassification 

process that was established in MSIAA 

does not provide for a specific dispute 

resolution process for misclassified 

drugs. CMS is implementing what the 

Congress set forth, which did not 

propose a dispute resolution process. 

However, we will take this suggestion 

into consideration for future 

rulemaking. 

d. Manufacturer Payment of Unpaid 

Rebates Due to Misclassification— 

447.509(d)(3) 

Once a determination that a 

misclassification has occurred in 

§ 447.509(d)(1) and the manufacturer 

has been notified of the 

misclassification in accordance with the 

proposed process steps at 

§ 447.509(d)(2), we proposed in 

§ 447.509(d)(3) the process by which 

manufacturers would pay unpaid 

rebates to the States resulting from a 

misclassification of a drug in the MDRP. 

Specifically, we proposed that a 

manufacturer must pay to each State an 

amount equal to the sum of the products 

of the difference between: the per unit 

rebate amount (URA) paid by the 

manufacturer for the COD to the State 

for each period during which the drug 

was misclassified, and the per URA that 

the manufacturer would have paid to 

the State for the COD for each period, 

as determined by the agency based on 

the data provided by the manufacturer 

under proposed paragraph (d)(2), if the 

drug had been correctly classified by the 

manufacturer, multiplied by the total 

units of the drug paid for under the 

State plan in each period. 

Consistent with section 1927(d)(4)(A) 

of the Act, we proposed in 

§ 447.509(d)(3)(i) a requirement for 

manufacturers to pay these unpaid 

rebate amounts and proposed to codify 

at § 447.509(d)(3) the timeframe by 

which the manufacturer must pay the 

unpaid rebates to the States for the 

period or periods of time that such COD 

was misclassified, based upon the 

proposed URA provided to the States by 

the agency for the unpaid rebate 

amounts. Specifically, we proposed that 

such rebates be paid to the States by the 

manufacturer within 60 calendar days of 

the date of the notice that is sent by the 

agency to the manufacturer indicating 

that the drug is misclassified and 

specifies that it is the manufacturer’s 

burden to contact the States and pay the 

rebates that are due. We also proposed 


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that a manufacturer would be required 

to provide documentation to the agency 

that all past due rebates have been paid 

to the States within the 60-calendar-day 

timeframe. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Several commenters 

supported the idea that manufacturers 

must pay unpaid rebates that result from 

the correction to misclassifications. One 

commenter recommended CMS clarify 

that this is not limited to the previous 

12 quarters. 

Response: We appreciate the support 

and agree that past due rebates from 

manufacturers to States for misclassified 

drugs are not limited to just the 

previous 12 quarters. Manufacturers are 

responsible for providing accurate 

information to CMS for their CODs for 

the entire amount of time that the COD 

is reported in the system, and if the 

inaccuracy of the reported drug product 

information goes back more than 12 

quarters, manufacturers should address 

it back to the beginning of the reporting 

of the incorrect drug product 

information. 

Comment: A couple of commenters 

suggested that the payment of unpaid 

rebates cannot go back further than 10 

years since the manufacturer record 

retention requirement is 10 years. They 

noted that it might be difficult to meet 

this requirement in circumstances 

where the drug was determined to be 

misclassified more than 10 years ago. 

Response: There is no time limit in 

section 1927 of the Act regarding 

manufacturers paying unpaid rebates 

back to States, whether for 

misclassification of the drug or for other 

reasons. In other words, there may be 

several reasons why a manufacturer may 

owe States past due rebates, and that is 

not necessarily limited to drug 

misclassifications. We note that 42 CFR 

447.510(f) does include a 10-year record 

keeping requirement for manufacturers 

with respect to their price reporting. 

However, there are also provisions in 

that section that require record keeping 

beyond the 10-year period in certain 

circumstances, including situations in 

which the records are subject to a 

government investigation or audit 

relating to pricing data of which the 

manufacturer is aware (so long as that 

investigation or audit began within the 

10-year time period). 

Comment: A few commenters 

expressed concerns about a 

manufacturer’s ability to meet the 60- 

day requirement to pay owed rebates for 

misclassified drugs due to the volume of 

rebate invoices they already receive 

from States under the MDRP and would 

further receive under this provision. 

Commenters also stated that 60 days is 

an insufficient amount of time to 

confirm a drug has been misclassified, 

collect and submit the information to 

CMS, calculate any owed rebates to the 

States, make the payment to the States, 

and provide documentation to CMS that 

it is completed. 

The commenters suggested the 

payment of any rebates due to 

misclassification should be facilitated 

through the same mechanism currently 

used for Medicaid rebates so they would 

be processed as prior quarter 

adjustments. Another suggested that 

180-day periods be allowed to pay 

rebates due to misclassification (with 

reasonable extensions to accommodate 

complex reclassification and payment 

obligations) since that timeframe would 

be more reasonable. Another commenter 

requested CMS provide manufacturers 

with the opportunity to start the 60-day 

timeframe when the URA is updated in 

the MDP system. 

Response: We disagree with the 

commenters’ contentions and believe 

that the assessment of a 

misclassification of a COD, and any 

resulting rebate payments, can be made 

by the manufacturers within the 60-day 

limit. Manufacturers must process 

revised rebates, which includes 

calculating any updated pricing 

statistics, such as best price and AMP, 

report those to CMS and certify them, 

and then use those revised data to 

calculate new URAs for the 

misclassified drug. Manufacturers must 

then use those data to adjust the rebates 

that they have already paid to the State 

for the misclassified drug and pay those 

adjustments to the State. We believe that 

a process separate from the normal 

quarterly rebate cycle would help States 

ensure that the payments were made for 

these misclassified drugs and could be 

tracked by States. 

A separate process can ensure there is 

a collection for rebates due for past 

quarters resulting from the 

misclassification. We also believe that 

processing these requests for rebates for 

misclassified drugs as the 

misclassification occurs rather than 

waiting for a quarterly rebate invoice 

process ensures that the 

misclassification is handled timely and 

appropriately. Accordingly, we believe a 

manufacturer can address a 

misclassification and any subsequent 

rebate payment within the 60-day 

timeframe. 

e. Agency Authority To Correct 

Misclassifications and Additional 

Penalties for Drug Misclassification— 

§ 447.509(d)(4) 

We proposed § 447.509(d)(4), 

consistent with section 1927(c)(4)(B) of 

the Act, which would allow CMS to 

correct the drug’s misclassification on 

behalf of the manufacturer, as well as 

provide a plan of action for enforcement 

against the manufacturer. Specifically, 

we proposed at § 447.509(d)(4) that the 

agency would review the information 

submitted by the manufacturer based on 

the notice sent under proposed 

paragraph (d)(2), and if a manufacturer 

fails to correct the misclassification and 

to certify applicable pricing and drug 

product information within 30 calendar 

days after the agency notifies the 

manufacturer of the misclassification, 

and/or fails to pay the rebates that are 

due to the States as a result of the 

misclassification within 60 calendar 

days of receiving such notification, the 

agency may do any or all of the 

following: 

• Correct the misclassification of the 

drug in the system, using any pricing 

and drug product information that may 

have been provided by the 

manufacturer, on behalf of the 

manufacturer; 

• Suspend the misclassified drug, and 

the drug’s status as a COD under the 

manufacturer’s rebate agreement from 

the MDRP, and exclude the 

misclassified drug from FFP in 

accordance with section 1903(i)(10)(E) 

of the Act; 

• Impose a Civil Monetary Penalty 

(CMP) for each rebate period during 

which the drug is misclassified, not to 

exceed an amount equal to the product 

of: 

• The total number of units of each 

dosage form and strength of such 

misclassified drug paid for under any 

State plan during such a rebate period; 

and 

• 23.1 percent of the AMP for the 

dosage form and strength of such 

misclassified drug for that period. 

We also proposed at 

§ 447.509(d)(4)(iv) to indicate that, in 

addition to the actions described 

previously in the proposed rule, we may 

take other actions or seek additional 

penalties that are available under 

section 1927 of the Act (or any other 

provision of law), against manufacturers 

that misclassify their drugs including 

referral to the HHS OIG and termination 

from the MDRP. We noted that section 

1927(b)(4)(B)(i) of the Act provides that 

the Secretary may terminate a 

manufacturer from the program for 

violation of the rebate agreement or 


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other good cause. Furthermore, section 

1927(c)(4)(D) of the Act indicates that 

other actions and penalties against a 

manufacturer for misclassification of a 

drug include termination from the 

program. Therefore, we proposed that a 

manufacturer may be subject to 

termination from the program if it fails 

to meet the agency’s specifications for 

participation in the MDRP program as 

proposed when it is in violation of 

section 1927(b)(4)(B)(i) or (c)(4)(D) of 

the Act. This includes failing to correct 

misclassified drugs as identified to the 

manufacturer by the agency and 

continuing to have one or more drugs 

suspended from MDRP because of the 

lack of certification of the correct drug 

classification data in the system. 

We noted that as provided in section 

1927(b)(4)(C) of the Act, a manufacturer 

with a terminated NDRA is prohibited 

from entering into a new NDRA for a 

period of not less than one calendar 

quarter from the effective date of the 

termination until all of the above or any 

subsequently discovered violations have 

been resolved unless the Secretary finds 

good cause for an earlier reinstatement. 

In accordance with section 

1927(b)(4)(B)(ii) of the Act, and section 

VII.(e) of the NDRA, termination shall 

not affect the manufacturer’s liability for 

the payment of rebates due under the 

agreement before the termination 

effective date. Consequently, invoicing 

by States may continue beyond the 

manufacturer’s termination from the 

program for any utilization that 

occurred prior to the effective date of 

the termination. 

We also clarified that suspension of a 

drug under this section as a COD due to 

a misclassification would not affect its 

status as a reimbursable drug under 

Medicare Part B or a drug covered under 

the 340B Program. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Some commenters 

expressed support for CMS to be able to 

reclassify a misclassified drug. Other 

commenters raised concerns about CMS 

being able to do this and suggested 

having a collaborative process or a 

dispute resolution process if the 

manufacturer disagrees. 

Response: We acknowledge the 

commenter’s concern but note that 

manufactures can collaborate with CMS 

under the process set forth in the 

proposed rule. As stated previously, 

under § 447.509(d)(2), when a 

manufacturer is notified of a 

misclassification, it must provide the 

information necessary to correct the 

misclassification. Upon receipt, CMS 

will make the corrections, and then the 

manufacturer must certify the 

applicable price and/or drug product 

information entered by CMS. This 

process allows for manufacturers to 

work with CMS to ensure the 

information in the system is accurate. 

It is only when the manufacturer takes 

no action to correct the misclassification 

that section 1927(C)(4)(B)(i) of the Act 

now gives CMS authority to correct 

misclassifications on behalf of the 

manufacturer. Thus, the regulation gives 

the manufacturer time to correct the 

misclassification and work with CMS to 

ensure the information is accurate, but 

if they do not, in accordance with the 

statute, CMS can use pricing and drug 

product information provided by the 

manufacturer to make the correction. 

This is one of several actions CMS may 

take if the manufacturer has not 

corrected the misclassification in a 

timely manner. 

In the Medicaid Drug Rebate Program 

Data Guide (July 2023), we clarified that 

any change made in the MDP system, 

including any change made by CMS, 

must be certified by the manufacturer in 

order for the changes to be effective in 

the MDP system. This applies to any 

changes made pursuant to CMS’ 

authority in § 447.509(d)(4). Given the 

comments and concerns raised, we are 

amending the regulatory text in 

§ 447.509(d)(4)(i) in this final rule to be 

consistent with this guidance and to 

clarify that any changes made by CMS 

must be certified by the manufacturer. 

Manufacturers will be given 30 days to 

certify those changes; if they do not, 

then CMS may take other authorized 

actions against the manufacturer. 

Finally, we note that the process to 

address misclassifications was 

established in MSIAA, and no dispute 

process was included in the statute. 

That said, we will consider such a 

process for future rulemaking. 

Comment: Some commenters 

mentioned that if CMS and the 

manufacturer are in a disagreement 

regarding a misclassification, CMS 

should not revise the pricing data 

points. They suggest this should be part 

of future rulemaking. 

Response: Pursuant to the statute, 

CMS has authority to correct a 

misclassification using the drug product 

information provided by the 

manufacturer on behalf of the 

manufacturer. The enforcement 

provisions in section 1927(c)(4)(B)(ii) of 

the Act provide options for CMS to take 

action when a manufacturer fails to 

correct a misclassification. CMS’ current 

process within the MDP system requires 

the manufacturer to certify any change 

made in the MDP system. However, 

CMS may certify changes on behalf of 

the manufacturer and would do so in 

this specific situation. We do not 

believe any additional regulatory 

changes are necessary based on these 

comments. 

Comment: Some commenters 

expressed support of CMS being able to 

impose the enumerated penalties in 

§ 447.509(d)(4). Several raised concerns 

specifically about the use of the 

suspension penalty. Some provided 

suggestions for other enforcement 

actions, such as keeping the drug 

available to Medicaid beneficiaries and 

taking other actions such as the 

manufacturer covering the entire cost of 

the drug during the suspension period, 

increasing the maximum civil monetary 

penalty that may be imposed, or only 

imposing the suspension after repeated 

failure by the manufacturer to correct 

the misclassification. One commenter 

suggested the suspension should only 

be imposed if the misclassification has 

a material impact on rebates. 

Response: We appreciate the 

suggestions regarding enforcement 

actions and the concerns that are raised 

about suspensions specifically. The 

statute sets forth several alternative 

penalties, including CMS making the 

correction on behalf of the 

manufacturer, civil money penalties, 

and suspension of the misclassified 

drug. CMS has incorporated these 

options into § 447.509(d)(4) and 

provides for flexibility for which 

penalties will be imposed on the 

manufacturer. As noted previously, 

misclassifications of CODs that occurred 

prior to 2019 must be corrected and 

must be done so in accordance with the 

provisions in § 447.509(d). There is no 

provision in the statute which would 

exempt CODs from these provisions if 

they were misclassified before 2019. If 

the manufacturer does not take such 

actions to correct misclassifications of 

their CODs, the penalties contained in 

§ 447.509(d)(4) will apply. 

Comment: A commenter supported 

the proposed enforcement actions and 

penalties as long as those are limited to 

data within the 10-year retention period. 

Response: As noted in other responses 

to comments, the reporting 

requirements under section 1927 of the 

Act are not limited to 10 years and, as 

such, changes may be necessary to 

correct misclassifications that were 

reported more than 10 years ago. In the 

absence of guidance and adequate 

documentation to the contrary, 

manufacturers may make reasonable 

assumptions that are consistent with the 

requirements and intent of section 1927 

of the Act and Federal regulations for 

reporting data for time periods prior to 


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10 years if they did not retain 

documents. However, if manufacturers 

do not take the actions set forth in 

§ 447.509(d)(2) and/or (3), the penalties 

in § 447.509(d)(4) may be applied. 

f. Transparency of Manufacturers’ Drug 

Misclassification—§ 447.509(d)(5) 

We proposed § 447.509(d)(5) to 

indicate that the agency would make 

available on a public website an annual 

report as required under section 

1927(d)(4)(C)(ii) of the Act on the 

COD(s) that were identified as 

misclassified during the previous year. 

This report would include a description 

of any steps taken by the agency with 

respect to the manufacturer to reclassify 

the drugs, ensure the payment by the 

manufacturer of unpaid rebate amounts 

resulting from the misclassifications, 

and disclose the use of the expenditures 

from the fund created in section 

1927(b)(3)(C)(iv) of the Act. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Several commenters 

supported CMS’ proposal that to meet 

the requirements of section 

1927(c)(4)(C)(ii) of the Act, CMS will 

provide public notice of 

misclassification of drugs through 

annual reporting on a public website. 

One commenter questioned whether the 

report will include drug pricing 

information. 

Response: We appreciate the support 

of CMS’ proposal. For the question 

about including drug pricing 

information, we will not include such 

information. The report will only 

include items that were used in making 

the determination that the drug was 

misclassified, which will not include 

any proprietary or confidential pricing 

information. Instead, as included in the 

proposed rule, the report will include 

the CODs that were identified as 

misclassified, any steps taken by CMS to 

reclassify the drugs and ensure payment 

of unpaid rebate amounts, and a 

disclosure of the expenditures of the 

funds created under section 

1927(b)(3)(C)(iv) of the Act. 

After consideration of public 

comments on this provision, we are 

finalizing § 447.509(d) as proposed with 

the exception of making a modification 

to proposed § 447.509(d)(4)(i), which 

will be amended to add the following 

language at the end of that section: ‘‘In 

such case, the manufacturer must certify 

the applicable correction within 30 

calendar days.’’ 

2. Requirements for Manufacturers 

Relating to Drug Category— 

Requirements for Manufacturers 

(§ 447.510(h)) 

Section 447.510(h) describes the 

process by which a manufacturer’s 

NDRA would be suspended after a 

manufacturer fails to report information, 

which includes drug pricing and drug 

product information, as described in 

section 1927(b)(3)(A) of the Act, within 

a specified timeframe. This drug 

product and pricing information 

includes AMP, best price, and drug 

product information as described in the 

proposed definition of drug product 

information included in this rule. 

Specifically, the new paragraph 

§ 447.510(h)(1) (originally § 447.510(i) 

in the proposed rule), proposed that if 

a manufacturer fails to provide the 

information required to be reported to 

the agency under § 447.510(a) and (d), 

the agency will provide written notice 

to the manufacturer of the failure to 

provide timely information and provide 

a deadline by which such information 

must be reported. If the manufacturer 

does not report the information within 

90 calendar days after that deadline, the 

manufacturer’s rebate agreement will be 

suspended for all CODs furnished after 

the end of the 90-calendar-day period. 

Further, the rebate agreement will 

remain suspended for Medicaid until 

such information is reported in full and 

certified, but not for a period of less 

than 30 calendar days. This section also 

proposed that continued suspension of 

the rebate agreement could result in 

termination for cause. 

As noted in the proposed rule, during 

the period of the suspension, the CODs 

of the manufacturer are not eligible for 

Medicaid coverage or reimbursement 

and Medicaid FFP. However, the 

manufacturer must continue to offer its 

CODs for purchase by 340B eligible 

entities, and reimbursement availability 

for such drugs under Medicare Part B 

would not change because, while 

suspended for purposes of the MDRP, 

the Medicaid drug rebate agreement 

with the manufacturer would remain in 

effect for purposes of Medicare Part B 

reimbursement and the 340B Program. 

Under proposed § 447.510(i)(2), we 

indicated that the agency would notify 

the States 30 calendar days before the 

effective date of the manufacturer’s 

suspension. In the preamble to the 

proposed rule, we noted that the 

suspension of a manufacturer’s 

agreement, and loss of the availability of 

FFP for a period of time, would likely 

mean that these manufacturer’s drugs 

would not be available to Medicaid 

beneficiaries during the period of the 

suspension. We indicated that the 30- 

day notice would give States time to 

work with beneficiaries and their 

prescribers to transition to other covered 

outpatient drugs that would meet the 

clinical needs of the beneficiaries 

during the suspension period. We also 

stated our belief that the intermediate 

step of suspension rather than 

termination should be sufficient 

incentive for manufacturers to report 

pricing and product information within 

the statutory and regulatory 

requirements, without initially resorting 

to termination, which means that a 

manufacturer’s drug could be 

unavailable to beneficiaries for a 

possible longer period of time. We also 

stated that we believe the proposed 

process provided clear implementation 

of the statutory authority to suspend a 

manufacturer’s rebate agreement in the 

event of a failure to provide timely 

information and would hopefully 

incentivize manufacturers to ensure the 

timely reporting of pricing and drug 

product information, which would 

further the efficient and economic 

operation of the MDRP. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Some commenters 

provided overall support of the 

proposed rule in § 447.510(i). 

Response: We thank the commenters 

for their support. 

Comment: Several commenters 

expressed opposition to the proposed 

suspension regulations in general or to 

specific provisions within the proposed 

regulations. 

Response: We appreciate the 

comments and note that the proposed 

regulations align with the requirements 

in the applicable statutes. 

Comment: Several commenters urged 

CMS to explicitly state in the final rule 

that manufacturers who fail to provide 

340B discounts during the suspension 

of the NDRA will face civil monetary 

penalties. Commenters also seek clear 

guidance on coverage and payment for 

340B-eligible products in relation to 

Medicaid during such suspensions. 

Response: CMPs on manufacturers for 

not providing 340B pricing is outside 

the scope of the rule and will not be 

addressed. However, regarding coverage 

and payment for 340B-eligible products 

during the period of the suspension of 

the COD for misclassification, 

manufacturers must still provide drugs 

through the 340B Program pursuant to 

42 U.S.C. 256b, and 340B covered 

entities may dispense those 

medications. To the extent the patients 

who receive these drugs acquired under 


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the 340B Program are Medicaid 

beneficiaries, there would be no FFP 

available for the claims for these drugs 

as Medicaid FFP is not available for the 

misclassified drugs of this manufacturer 

during the period of the suspension. 

States could opt to cover those claims 

through State-only funds. 

Comment: A commenter suggested 

that while CMS’ ability to suspend 

NDRAs might prompt quicker pricing 

data disclosures, it does not guarantee 

their accuracy; thus, CMS should audit 

suspicious claims. 

Response: We appreciate the concern. 

Under section 1927(b)(3)(A) of the Act, 

manufacturers have always been 

required to accurately report their data 

to CMS, and in a timely manner as 

prescribed by statute. Upon submitting 

their data, manufacturers certify their 

completeness and accuracy. If a 

manufacturer subsequently needs to 

adjust their pricing or product data, it 

may do so within specified periods of 

time and under certain conditions, and 

may also adjust rebates paid to States, 

if applicable. If CMS suspects that the 

manufacturer’s data is not complete or 

inaccurate, CMS will contact the 

manufacturer to inquire about the data’s 

completeness or accuracy, or if there are 

still questions about the completeness 

or accuracy of the data, the 

manufacturer can be referred to the OIG. 

Comment: Some commenters 

suggested CMS provide a weekly file or 

use another system to provide the 

updated suspended manufacturer 

information on a more timely basis. 

Response: For terminations of 

manufacturers from the program, States 

are given a 30-day notice through a 

notification system, and such 

terminations are noted at https://

www.medicaid.gov/medicaid/ 

prescription-drugs/medicaid-drugrebate-program/newreinstatedterminated-labeler-information/ 

index.html. CMS will use the same type 

of process to notify affected parties of 

suspensions of manufacturer rebate 

agreements, and the status of such 

suspensions. 

Comment: Many commenters 

suggested that providing a 30-day notice 

to States regarding an upcoming 

suspension is too short. They expressed 

concern about the impact on patient 

care. Others noted that it is unclear how 

long the suspension will last, which 

impacts a State’s decision on coverage 

of a suspended manufacturer’s covered 

outpatient drugs. 

Response: We provide a 30-day notice 

for terminations and believe that it 

makes sense for this to be consistent for 

suspensions. After the minimum 30-day 

suspension, the suspension can end as 

soon as the late information is reported 

to CMS, CMS has reviewed for 

completeness, and the manufacturer 

certifies the data. We also note that the 

length of the suspension depends on 

how soon the manufacturer reports the 

data. 

Comment: Some commenters 

expressed concerns over CMS’ proposed 

90-day window for manufacturers to 

provide information that was not 

received by the statutory deadline prior 

to suspension. They expressed a need 

for flexibility and requested additional 

time for data review and validation. 

Response: The statute does not allow 

for flexibility in the timeline, and we 

believe the timeline is reasonable. The 

statute states that if the information is 

not reported within 90 days of the 

imposed deadline, the manufacturer’s 

rebate agreement shall be suspended. 

Manufacturers are expected to report on 

a timely basis; this proposal provides an 

additional 90 days after missing a 

deadline to report prior to suspension. 

Comment: Several commenters 

expressed concern regarding the 

requirement that CMS suspend a 

manufacturer’s NDRA for a minimum of 

30 days. Commenters also advocated for 

alternative compliance measures such 

as fines or extended deadlines. 

Response: We appreciate the 

comments but note that a suspension is 

required by the statute. The statute 

requires the suspension for no less than 

30 days. We proposed that the 

manufacturer is suspended until the 

date the information is reported to the 

agency and the agency reviews for 

completeness but not for a period of 

fewer than 30 days. 

The Secretary is authorized to impose 

penalties for late reporting. CMS notes 

that the statute authorizes penalties for 

each day in which the information has 

not been provided, and if such 

information is not reported within 90 

days of the imposed deadline, the 

agreement shall be suspended. Penalties 

are assessed by the OIG and are outside 

the scope of this rule; our rule addresses 

the situation once the suspension phase 

is reached. 

Comment: Several commenters noted 

that the loss of FFP could result in an 

increased cost to the State if the 

products are covered with State-only 

funds, which may result in States not 

covering the products and effectively 

end coverage of these products. Some 

suggested that the claims should not 

lose eligibility for Federal funding or 

should be eligible for an additional 60 

days after notice of suspension. 

Response: As noted in our preamble 

in the proposed rule, during the period 

of a suspension, the claims for the 

suspended drug are not eligible for FFP. 

States may cover the product using 

State-only funds if they choose or may 

choose to not cover the products while 

the product is suspended. This is 

consistent with other coverage decisions 

of products for which there is no FFP. 

Our hope is that manufacturers will 

choose to report their required 

information in a timely manner and not 

be subject to this suspension. 

Comment: One commenter requested 

CMS clarify if FFP would be available 

for crossover Part B claims for these 

drugs. 

Response: FFP would not be available 

for Part B crossover claims for dual 

eligibles. As we noted in the proposed 

rule, reimbursement availability under 

Medicare Part B would not change. 

Thus, our rule does not impact 

Medicare coverage or reimbursement. 

However, for crossover purposes, the 

claim would not be eligible for FFP if 

the Medicaid program made any 

payment on the claim. In addition, the 

claim would not be eligible for 

manufacturer rebates. 

After consideration of public 

comments on this provision, we are 

finalizing this provision as proposed. 

G. Proposals Related to Amendments 

Made by the American Rescue Plan Act 

of 2021—Removal of the Manufacturer 

Rebate Cap (100 Percent AMP) 

In the proposed rule, we added 

provisions that would make conforming 

changes to our regulations based on 

section 9816 of the American Rescue 

Plan Act (ARP) of 2021, which 

sunsetted the limit on maximum rebate 

amounts for single source and innovator 

multiple source drugs by amending 

section 1927(c)(2)(D) of the Act by 

adding ‘‘and before January 1, 2024,’’ 

after ‘‘December 31, 2009’’. In 

accordance with section 1927(c)(3)(C)(i) 

of the Act and the special rules for 

application of the provision in sections 

1927(c)(3)(C)(ii)(IV) and (V) of the Act, 

this sunset provision also applies to the 

limit on maximum rebate amounts for 

CODs other than single source or 

innovator multiple source drugs. 

We noted that section 2501(e) of the 

Affordable Care Act had amended 

section 1927(c)(2) of the Act by adding 

a new subparagraph (D) and established 

a maximum on the total rebate amount 

for each dosage form and strength of a 

single source or innovator multiple 

source drug at 100 percent of AMP, 

effective January 1, 2010. This limit or 

‘‘rebate cap’’ on maximum rebate 

amounts was codified at § 447.509(a)(5) 

for single source and innovator multiple 

source drugs, effective January 1, 2010. 

This limit was later extended to apply 


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to drugs other than single source or 

innovator multiple source drugs by 

section 602 of the Bipartisan Budget Act 

of 2015 (Pub. L. 114–74, enacted 

November 2, 2015) (BBA 2015), which 

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

require that manufacturers pay 

additional rebates on each dosage form 

and strength of such drugs if the AMPs 

of such drugs increase at a rate that 

exceeds the rate of inflation. This 

provision of BBA 2015 was effective 

beginning with the quarter starting on 

January 1, 2017, and the limit on 

maximum rebates for drugs other than 

single source or innovator multiple 

source drugs was added at 

§ 447.509(a)(9). 

To align § 447.509 with section 

1927(c)(2)(D) of Act, as amended by the 

American Rescue Plan Act of 2021, and 

sections 1927(c)(3)(C)(i), (ii)(IV), and 

(ii)(V) of the Act, we proposed to make 

conforming changes to § 447.509 to 

reflect the removal of the maximum 

rebate amounts for rebate periods 

beginning on or after January 1, 2024. 

Specifically, we proposed to amend 

§ 447.509(a)(5) and (9) to state that the 

limit on maximum rebate amounts 

applies to certain timeframes, which, for 

all drugs, ends on December 31, 2023. 

That is, no maximum rebate amount 

would apply to rebate periods beginning 

on or after January 1, 2024. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Commenters commended 

CMS’ proactive steps in aligning the 

regulations with the ARP provision to 

remove the manufacturer rebate cap by 

January 1, 2024. One commenter 

indicated that while they support the 

proposed change to regulation on the 

manufacturer rebate cap, they also 

believe the Secretary should be given 

flexibility to reduce Medicaid inflation 

rebate amounts owed under the MDRP 

for drugs in shortage, consistent with a 

separate policy enacted under the 

Inflation Reduction Act for rebate 

amounts owed under the Medicare 

Prescription Drug Inflation Rebate 

Programs. 

Response: We appreciate the support 

for the revisions made to the regulation 

to remove the manufacturer rebate cap. 

As for the comment regarding drug 

shortages, there is no statutory authority 

for the Secretary to reduce rebate 

amounts or ‘‘cap’’ rebates with respect 

to the MDRP in cases when a drug is in 

shortage. 

Comment: A commenter raised 

concerns that the proposed rule prompts 

questions about the 340B Program’s 

‘‘penny pricing policy,’’ potentially 

leading to negative ceiling prices, and 

how that aligns with the intention to 

penalize manufacturers for rapid price 

hikes. Specifically, the commenter 

requested that CMS work with HRSA to 

clarify the impact of this provision on 

HRSA’s ‘‘penny pricing policy,’’ which 

requires that when the ceiling price 

calculation at 42 CFR 10.10(b) results in 

an amount less than $0.01, the 340B 

ceiling price will be $0.01. The 

commenter stated that the current 

policy needs to be addressed given that, 

beginning January 1, 2024, the ceiling 

price calculation for the 340B Program 

could be a negative number 

substantially lower than $0.01. 

Response: This comment is outside of 

the scope of this rule. HRSA administers 

the 340B Program and developed the 

policy referred to as ‘‘penny pricing’’ 

when the ceiling price (the maximum 

price a manufacturer may charge a 340B 

covered entity) is zero. We note that 

while CMS does not administer the 

340B Program, HRSA and CMS often 

work together when statutory changes to 

the MDRP may affect the 340B Program. 

These comments have been shared with 

HRSA. 

Comment: A commenter requested 

that CMS adopt what the commenter 

considers to be a ‘‘standard’’ definition 

of ‘‘rebate,’’ that would ensure that 

rebates under the MDRP do not surpass 

the State Medicaid program’s payment 

for a drug, eliminating potential 

constitutional concerns and ambiguities. 

The commenter indicated that the 

meaning of ‘‘rebate’’ is compelled not 

only by the plain language of the statute, 

but also by constitutional doctrines. The 

commenter stated that the Takings 

Clause of the Fifth Amendment to the 

United States Constitution (Takings 

Clause) supports this meaning because, 

otherwise, manufacturers could be 

deprived of the economic value of their 

drugs and, in some cases, even forced to 

pay States to dispense or administer 

their drugs to Medicaid recipients. 

Furthermore, the commenter indicated 

that Federal courts have consistently 

recognized that ‘‘completely depriv[ing] 

an owner of ‘all economically beneficial 

us[e]’ of her property,’’ or ‘‘reduc[ing] to 

zero’’ the economic value of something, 

such as a drug product, would 

constitute a taking, which presupposes, 

a fortiori, that making each sale cost the 

company more than it earns would also 

affect a taking. The commenter noted 

that the interpretation of the statute to 

which the commenter objects would 

take drug manufacturers’ property based 

on actions (such as price increases) that 

took place long before the law was 

enacted, raising significant retroactivity 

concerns that also implicate the Takings 

Clause. 

The commenter indicated that these 

retroactivity concerns also implicate the 

Due Process Clause, which ‘‘protects the 

interests in fair notice and repose that 

may be compromised by retroactive 

legislation.’’ The commenter noted that 

drug manufacturers made business 

decisions years ago based on their 

understanding that they would supply 

drugs at a discount under the MDRP, 

not pay States to dispense or administer 

their products to Medicaid recipients. 

The commenter stated that if the agency 

were to stray from the ordinary meaning 

of ‘‘rebate,’’ that would effectively 

impose a potential penalty without 

providing manufacturers with the 

requisite ‘‘fair warning of the conduct 

[the] regulation prohibits or requires.’’ 

The commenter recommended CMS 

codify in § 447.509 that, irrespective of 

the sunset of the statutory AMP rebate 

cap, there is a separate and distinct 

natural limit on MDRP rebates 

stemming from the ordinary meaning of 

the term ‘‘rebate’’ that does not permit 

such rebates to exceed State purchase 

prices. The commenter recommended 

CMS address this directly and adopt 

this ordinary meaning of the term 

‘‘rebate’’ by regulation so that there is no 

ambiguity on this point among the State 

Medicaid programs. 

Response: The ARP did not define 

rebate for purposes of the MDRP, and 

CMS is not defining the term rebate as 

part of this final rule. Furthermore, the 

amount of the rebate that is paid by the 

manufacturer is not solely driven by the 

statute’s removal of the cap, but also by 

how much a manufacturer increases its 

drug prices, as reflected by changes in 

the AMP, compared to the rate of 

inflation. 

After consideration of public 

comments on this provision, we are 

finalizing as proposed. 

H. Proposal To Clarify § 447.509(a)(6), 

(7), (8), and (9) and (c)(4) With Respect 

to ‘‘Other Drugs’’ 

In the proposed rule, we included a 

provision that would replace each 

appearance of the term ‘‘noninnovator 

multiple source drug(s)’’ in § 447.509 

with ‘‘drug(s) other than a single source 

drug or an innovator multiple source 

drug.’’ As background, we noted that 

section 1927(c) of the Act describes how 

the unit rebate amount (URA) is 

determined for a COD. We also noted 

that there is a defined calculation of the 

applicable basic rebate and additional 

rebate for a COD that is either a single 

source drug or innovator multiple 

source drug at sections 1927(c)(1) and 

(2) of the Act, and a different defined 


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21See section V, Dispute Resolution, ‘‘Medicaid 

Program: Announcement of Medicaid Drug Rebate 

Continued 

calculation for ‘‘other drugs,’’ that is, a 

COD that is a drug other than a single 

source drug or an innovator multiple 

source drug at section 1927(c)(3) of the 

Act. 

We provided background in the 

proposed rule explaining that section 

1927(c)(3) of the Act, titled ‘‘Rebate for 

other drugs,’’ describes in subsections 

(c)(3)(A) and (B) the basic rebate 

calculation for CODs other than single 

source drugs and innovator multiple 

source drugs. We noted that section 

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

additional rebate calculation for CODs 

other than single source drugs or 

innovator multiple source drugs, 

explaining that the statute makes it clear 

that rebates are applicable to all CODs, 

whether they are single source drugs, 

innovator multiple source drugs, or 

drugs other than such drugs. 

We also noted that manufacturers are 

required to report all of their CODs in 

the MDRP reporting system and must 

select the appropriate drug category for 

each (that is, S, I, or N). Since the 

beginning of the MDRP, the term 

noninnovator multiple source drug, and 

its abbreviation (N), have been used 

very generally to identify a COD other 

than a single source drug or an 

innovator multiple source drug in our 

system for operational purposes. 

Choosing N in the MDRP reporting 

system thus can result in capturing 

drugs that satisfy the statutory 

definition of an N drug, but also other 

drugs that are not single source or 

innovator multiple source drugs. We 

noted that because manufacturers are to 

report all of their CODs and identify the 

applicable drug category, all CODs other 

than a single source drug or an 

innovator multiple source drug should 

be identified with the drug category of 

N, regardless of whether they satisfy the 

definition of noninnovator multiple 

source drug. 

We noted that in the 2007 final rule, 

we finalized a definition for 

‘‘noninnovator multiple source drug’’ to 

clarify the distinction between multiple 

source drugs approved under an 

abbreviated new drug application 

(ANDA) and multiple source drugs 

approved under a new drug application 

(NDA). We also finalized that the term 

includes a drug that entered the market 

prior to 1962 that was not originally 

marketed under an NDA (72 FR 39162). 

We stated that over the years, interested 

parties have used the term 

‘‘noninnovator multiple source drug’’ 

synonymously with ‘‘a covered 

outpatient drug that is a drug other than 

a single source drug or an innovator 

multiple source drug.’’ However, the 

statute specifically defines 

‘‘noninnovator multiple source drug’’ at 

section 1927(k)(7)(iii) of the Act as a 

multiple source drug that is not an 

innovator multiple source drug. We 

therefore noted that we believe that the 

regulatory definition of noninnovator 

multiple source drug may not fully align 

with the statutory definition because the 

regulatory definition does not capture 

every COD that is something other than 

a single source drug or an innovator 

multiple source drug; that is, not every 

‘‘other drug’’ is a multiple source drug. 

Practically, though, we noted that while 

the terms ‘‘other drugs’’ and 

‘‘noninnovator multiple source drugs’’ 

are not synonymous, they are treated so 

for purposes of reporting the COD in the 

MDRP system, because ‘‘other drugs’’ 

should be classified as N, if not an S or 

I drug. 

As noted previously, the statute 

makes it clear that rebates apply to all 

CODs, regardless of whether they are 

single source drugs, innovator multiple 

source drugs, or something other than a 

single source drug or innovator multiple 

source drug. To align our longstanding 

policy and practices of identifying 

‘‘other drugs’’ referenced in section 

1927(c)(3) of the Act as N drugs, for 

purposes of the MDRP, we proposed to 

modify language in § 447.509 by 

replacing each appearance of 

‘‘noninnovator multiple source drug(s)’’ 

with ‘‘drug(s) other than a single source 

drug or an innovator multiple source 

drug.’’ 

We proposed to delete each 

appearance of ‘‘noninnovator multiple 

source drug(s)’’ in § 447.509 and replace 

it with ‘‘drug other than a single source 

drug or innovator multiple source 

drug(s).’’ The clarification was proposed 

to be made in § 447.509(a)(6), (7), (8), 

and (9) and (c)(4). 

We received a public comment on this 

proposal. The following is a summary of 

the comment we received and our 

response. 

Comment: One commenter stated that 

CMS should clarify that the replacement 

of ‘‘noninnovator multiple source drug’’ 

with ‘‘drug other than a single source 

drug or innovator multiple source drug’’ 

is not intended to have any effect on the 

narrow exceptions process. 

Response: The replacement of the 

term ‘‘noninnovator multiple source 

drug(s)’’ in § 447.509 with ‘‘drug(s) 

other than a single source drug or an 

innovator multiple source drug’’ was 

proposed to align the regulatory 

language with the statute, which 

requires rebates for CODs other than 

single source drugs and innovator 

multiple source drugs regardless of 

whether they are multiple source drugs. 

The proposed change was also intended 

to clarify our longstanding policy and 

practices of identifying ‘‘other drugs’’ as 

N drugs for the purposes of the MDRP. 

The proposed changes in § 447.509 are 

not intended to change the narrow 

exception process. 

After consideration of public 

comments, we are finalizing the 

clarifications to the language in 

§ 447.509 as proposed. This clarification 

should not affect the drug category code 

reported in the MDRP reporting system 

for drugs other than single source drugs 

or innovator multiple source drugs. 

Drugs other than single source drugs 

and innovator multiple source drugs 

should continue to be reported in the 

MDRP system with the drug category of 

‘‘N’’. 

I. Proposal To Establish a 12-Quarter 

Rebate Audit Time Limitation 

(§ 447.510) 

In the proposed rule, we included 

provisions to provide a 12-quarter time 

limit for processes related to the 

initiation of rebate audits by 

manufacturers. As background, we 

noted that in accordance with sections 

1927(b)(1) and 1927(c) of the Act, and 

section II(b) of the NDRA, 

manufacturers are required to pay 

quarterly rebates to States for the CODs 

dispensed and paid for under the State 

plan for the rebate period. Section 

1927(b)(2)(B) of the Act provides that a 

manufacturer may audit the rebate 

billing information provided by the 

State as set forth under section 

1927(b)(2)(A) of the Act on the total 

number of units of each dosage form, 

strength and package size of each COD 

dispensed and paid for under the State 

plan during a rebate period, and 

authorizes that adjustments to rebates 

shall be made to the extent that the 

information provided by States 

indicates that utilization was greater or 

less than the amount previously 

specified. For the purposes of the 

regulation, we noted that audit authority 

is intended to refer to any process a 

manufacturer is using to seek an 

adjustment to State drug utilization data 

under section 1927(b)(2)(B) of the Act. 

We also noted that section V. of the 

NDRA describes how the agency 

operationalizes the manufacturer audit 

authority; that is, it describes the 

procedures for manufacturer dispute 

resolutions once an audit identifies a 

dispute with the utilization data (that is, 

number of units for any given quarter) 

for which States are requesting rebates 

using a rebate invoice.21 The audit/ 


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79058 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

Program National Rebate Agreement,’’ Final Notice, 

83 FR 12770 (Mar. 23, 2018). 

22State Release 177, State Release 181, State 

Release 56, Manufacturer Release 115, 

Manufacturer Release 105, Manufacturer Release 

95, and Manufacturer Release 20. 

23https://www.ncpdp.org/NCPDP/media/pdf/ 

WhitePaper/Medicaid-Drug-Rebate-ProgramChallenges-Across-the-Industry.pdf?ext=.pdf. 

24Please see State Release 181, https://

www.hhs.gov/guidance/sites/default/files/hhsguidance-documents/state-rel-181_42.pdf. 

25https://www.ncpdp.org/NCPDP/media/pdf/ 

WhitePaper/Medicaid-Drug-Rebate-ProgramChallenges-Across-the-Industry.pdf?ext=.pdf. 

26We had also referenced section 1102 of the Act 

for our authority to implement this provision. 

Section 1102 of the Act grants the Secretary 

authority to promulgate regulations but not the 

authority to impose specific requirements and thus 

does not need to be cited as authority to implement 

this provision. 

dispute resolution processes are further 

discussed in a number of manufacturer 

releases.22 We explained that an 

adjustment is a correction in the number 

of units for any given NDC or a 

correction to the unit rebate amount 

(URA) by the labeler for any given 

NDC.23 We clarified a dispute to mean 

‘‘a disagreement between the labeler and 

the State regarding the number of units 

the State invoiced for any given 

quarter.’’ Finally, consistent with 

section 1927(b)(2)(B) of the Act, we 

noted that all disputes must be resolved 

on a unit basis only, and not on any 

other factor (for example, monetary 

amounts, percentages, etc.).24 State 

Release Number 45 sets forth the 

Dispute Resolution Process for 

manufacturers and States to follow 

when engaged in a dispute. In that 

release, we specified that the 

manufacturer should notify a State of 

the disputed data no later than 38 days 

after the State’s utilization invoice is 

sent. 

We also pointed out that while 

section V. of the NDRA, along with 

several CMS-issued program releases, 

addresses dispute resolution procedures 

for when a manufacturer identifies State 

drug utilization data (SDUD) 

discrepancies based on the audit 

authority at section 1927(b)(2)(B) of the 

Act, no law or regulation provides a 

specific time limitation for initiating a 

dispute over drug utilization data.25

Thus, we indicated that we believe 

having an unlimited timeframe to 

initiate such disputes on rebates can 

result in manufacturer, State, and 

Federal resources being spent to 

adjudicate excessively old data and is 

not an efficient use of resources. We, 

therefore, proposed to use our authority 

under sections 1102 and 1902(a)(4) of 

the Act, which authorizes the Secretary 

to specify methods of administration 

found to be necessary for proper and 

efficient administration of the Medicaid 

program, to require efficient handling of 

disputes by limiting the period for 

manufacturers to initiate disputes, 

hearing requests, and audits concerning 

State-specified COD utilization data to 

12 quarters from the last day of the 

quarter from the date of the State 

invoice. Consistent with this authority, 

we proposed to establish a 12-quarter 

time limit for manufacturers to initiate 

disputes, hearing requests, and audits 

for State-invoiced units on current 

rebates as well as to initiate disputes, 

hearing requests, and audits on rebates 

that have been paid in full. We 

proposed a time limitation to help 

ensure that discrepancies are identified 

and resolved, thereby promoting the 

efficient operation of the MDRP. 

We recognize the potential burden for 

States and manufacturers to comply 

with a 38-day dispute initiation 

timeframe as mentioned in State Release 

Number 45; while we believe 38 days is 

optimal, we stated in the proposed rule 

that we believe that a 12-quarter 

timeframe is reasonable because it 

comports with requirements for 

maintenance of records on State 

Medicaid expenditures at § 433.32. We 

reminded manufacturers it also mirrors 

the timeline for reporting revisions to 

monthly AMP at § 447.510(d)(3). We 

also noted that there are 2-year timely 

claims filing deadlines under section 

1132(A) of the Act, and regulations at 45 

CFR 95.7, which may prohibit States 

from claiming FFP in these situations, 

unless under a good cause waiver. 

Therefore, we proposed to ensure the 

efficient handling of rebate disputes, by 

limiting the period for manufacturers to 

initiate disputes, hearing requests, or 

audits concerning State utilization data 

submitted pursuant to section 

1927(b)(2)(A) of the Act to 12 quarters 

from the last day of the quarter from the 

date of the State invoice. This is 

consistent with our authority at section 

1902(a)(4) of the Act.26

Accordingly, we proposed at 

§ 447.510(i) that a manufacturer may, 

within 12 quarters from the last day of 

the quarter from the State invoice date, 

initiate a dispute, request a hearing or 

seek an audit with a State for any 

discrepancy with SDUD reported under 

section 1927(b)(2)(A) of the Act on the 

State rebate invoices. 

We received public comments on this 

proposal. The following is a summary of 

the comments received and our 

responses. 

Comment: We received numerous 

comments supporting CMS’ proposal to 

impose a 12-quarter limit on 

manufacturers initiating disputes on 

State drug utilization data, as it will 

streamline administrative processes, 

reduce burdens on States and providers, 

and ensure that disputes are based on 

recent, validated data. Additionally, 

commenters noted that imposing time 

limits on the initiation of disputes and 

audits streamlines the States’ 

management of the drug rebate program. 

Response: We appreciate commenters’ 

support. We are focused on increasing 

efficiency and economy of overall 

MDRP resources to better facilitate the 

needs of Medicaid beneficiaries. We 

believe the time limitation on rebate 

disputes by manufacturers will help 

ensure that discrepancies are timely 

identified and efficiently resolved, 

thereby providing increased financial 

certainty to manufacturers and States, 

while promoting the efficient operation 

of the MDRP. 

Comment: Multiple commenters 

opposed CMS’ proposal for a 12-quarter 

audit limit, citing a lack of statutory 

authority, and questioned CMS’ 

authority to implement such a 

requirement. 

Response: We believe that a limitation 

on the timeline of when a manufacturer 

may audit comports with our policy 

goals and is supported by CMS’ general 

rulemaking authority in section 1102, as 

well as 1902(a)(4) of the Act, which 

allows the Secretary to specify such 

methods necessary for the proper and 

efficient operation of the plan. We have 

the responsibility of administering the 

MDRP and ensuring the proper and 

efficient operation of the Medicaid 

program, and establishing a timeframe 

limitation for manufacturer audits is 

consistent with this goal. Additionally, 

having this timeline limitation provides 

more financial certainty for States and 

Manufacturers for rebate purposes 

because invoices, transactions, and 

payments can be settled, therefore 

increasing stability in program 

operations. 

Comment: Some commenters 

suggested that if CMS imposes a 12- 

quarter limit on manufacturers’ ability 

to dispute rebates, they should ensure 

the timeframe starts when 

manufacturers receive the State invoice. 

Specifically, commenters stated that the 

timeframe should begin when 

manufacturers receive the State invoice 

that includes the disputed utilization or 

when manufacturers receive detailed 

claims data. 

Response: We continue to encourage 

States to respond to reasonable requests 

from manufacturers for claims level 

data, as the willingness to share data, 

methodologies, and resolution strategies 

generally leads to resolutions. However, 

as these requests are on an as-needed 


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27Please reference Manufacturer Release 89 

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

medicaid-chip-program-information/by-topics/ 

prescription-drugs/downloads/rx-releases/mfrreleases/mfr-rel-089.pdf, Manufacturer Release 7 

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

medicaid-chip-program-information/by-topics/ 

prescription-drugs/downloads/rx-releases/mfrreleases/mfr-rel-007.pdf, and State Release 29 

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

medicaid-chip-program-information/by-topics/ 

prescription-drugs/downloads/rx-releases/mfrreleases/mfr-rel-029.pdf, for our policy on postmark 

dates. 

28Please see State Release 166 https://

www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/state-releases/staterel-166.pdf, State Release 154 https://

www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/state-releases/staterel-154.pdf, and Manufacturer Release 80 https://

www.medicaid.gov/sites/default/files/medicaidchip-program-information/by-topics/prescriptiondrugs/downloads/rx-releases/mfr-releases/mfr-rel080.pdf for our policy and guidance related to 

postmark dates. 

basis, we do not believe the date for 

which claims level details are received 

by the manufacturer is an appropriate 

date to start the dispute initiation 

timeline limitation. 

Upon further consideration, we 

believe the invoice postmark date will 

offer the same clarity for the interested 

parties involved in the dispute process 

and will better align with established 

Medicaid policy. In accordance with 

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

terms of the NDRA, manufacturers are 

required to pay a rebate to each State for 

all CODs of the manufacturer that were 

paid for in a quarterly rebate period. 

This section of the Act also states that 

such rebate payments are to be paid 

within 30 days of the manufacturer’s 

receipt of the State invoice. For 

purposes of calculating interest on late 

rebate payments, previously issued 

guidance has noted that manufacturers 

have 37 calendar days as evidenced by 

the postmark by the U.S. Postal Service 

on the envelope to pay rebates before 

interest begins to accrue.27 That is, upon 

receipt of a quarterly invoice, 

manufacturers have 37 calendar days’ 

time from the invoice postmark date to 

pay rebates before interest begins to 

accrue on the 38th day. Therefore, to 

maintain consistency, we are amending 

the proposed language in this final rule 

to specify that upon receipt of a 

quarterly invoice, the period for 

manufacturers to initiate audits or 

disputes concerning State drug 

utilization data begins on the last day of 

the quarter from the State invoice’s 

postmark date. 

As an example, if the invoice 

postmark date is in the fourth quarter of 

2024, then the time period to initiate a 

dispute ends 12 quarters after the last 

day of the fourth quarter of 2024, which 

would be the last day of the fourth 

quarter of 2027. If States use electronic 

invoicing via email, we expect States to 

include the invoice itself within the 

body of the email to a manufacturer or, 

at minimum, information on the number 

of units paid by NDC. In this case, we 

view the postmark date as the date on 

which the email is sent. Similarly, if a 

State sends an email with the invoice 

attached, then the date when the 

initiation time period ends is 12 

quarters from the last day of the quarter 

in which the email was sent. For 

example, if the email was sent in the 

fourth quarter of 2024, then the time 

period to initiate a dispute ends 12 

quarters after the last day of the fourth 

quarter of 2024, which would be the last 

day of 4Q2027.28

Comment: Some commenters 

expressed concerns regarding fairness 

and parity between manufacturers and 

States. While advocating for equitable 

treatment between manufacturers and 

States, some suggested either 

adjustments to the proposal or that CMS 

set forth similar time limits for similar 

types of requests by States or 

manufacturers. Some stated that because 

similar limitations were not placed on 

States, the provision is biased against 

manufacturers, possibly compromising 

accuracy and fairness in the MDRP. 

Additionally, a few commenters stated 

that manufacturers have reported 

receiving State rebate invoices related to 

decades-old utilization, and that States 

should have time limitations on 

disputes and submitting invoices to 

manufacturers, including limitations on 

the initiation of corrections or 

resubmissions of invoice data. These 

commenters stated that if manufacturers 

are to be time-limited in their ability to 

audit invoices, State Medicaid programs 

need to be held to a comparably limited 

period in which to submit rebate 

utilization. 

Response: Section 1927(b)(2)(B) of the 

Act provides that a manufacturer may 

audit the rebate billing information 

provided by the State under section 

1927(b)(2)(A) of the Act. This includes 

the total number of units of each dosage 

form, strength, and package size of each 

COD dispensed and paid for under the 

State plan during a rebate period. 

Adjustments to rebates are based on unit 

utilization and are authorized to the 

extent that the information provided by 

States indicates that utilization was 

greater or less than the amount 

previously specified. 

States have similar equitable 

timelines with which to comply when 

invoicing for rebates. States are required 

to invoice manufacturers based on the 

State’s utilization of the manufacturer’s 

CODs each quarter and must provide 

invoices no later than 60 days after the 

end of each quarter. Additionally, States 

have a 2-year timely claim filing 

deadline under section 1132(A) of the 

Act. This incentivizes States to manage 

and resolve disputes within this 

timeframe. 

Disputes handled beyond this 2-year 

deadline create recordkeeping and fiscal 

issues for the States, hindering them in 

claiming FFP from the Federal 

government because the dispute exceeds 

the timely filing window. Resolving 

disputes requires the claim to be 

reversed and resubmitted, with States 

not receiving Federal match on these 

resubmitted claims if the dates of 

service fall outside the timely filing 

window. Therefore, we believe this 

timely filing deadline provides 

necessary incentives for States to 

resolve rebate disputes swiftly, as they 

must absorb the full cost of a rebate 

correction, including the portion that 

would otherwise be paid for through 

FFP. 

Furthermore, the 12-quarter 

timeframe provided to manufacturers 

significantly extends the timeframe that 

was specified in previous guidance. 

State Release Number 45 and 

Manufacturer Release Number 11 

outline the Dispute Resolution Process 

for manufacturers and States in rebate 

disputes. In these releases, we specified 

that manufacturers should notify a State 

of disputed data no later than 38 days 

after the State utilization data is sent. 

We continue to believe that 

manufacturers and States need to 

communicate as soon as possible on 

suspected drug unit issues to prevent 

and resolve disputes, preferably even 

before rebates are due. Establishing the 

12-quarter time limitation for 

manufacturers to initiate disputes also 

aligns with the timelines permitted for 

manufacturers to report changes to data 

elements relevant to the calculation of 

MDRP rebate amounts. For these 

reasons, we continue to believe this is 

a balanced solution that is equitable for 

both manufacturers and States, 

providing sufficient time for dispute 

initiation. 

Comment: One commenter expressed 

concern that States do not always 

engage effectively with manufacturers 

and their representatives when disputes 

arise. They stated that CMS should 

require States to respond to 

manufacturer-initiated disputes in a 

timely and effective manner and 

provide guidance when such disputes 

reach an impasse. 


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79060 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

29For best practices for avoiding 340B duplicate 

discounts in Medicaid, please see our January 8, 

2020 Informational Bulletin https://

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

downloads/cib010820.pdf. 

Response: As stated in the NDRA, 

both the State and the manufacturer are 

expected to use their best efforts to 

resolve a dispute within a reasonable 

timeframe after the State’s receipt of the 

manufacturer’s Reconciliation of State 

Invoice (ROSI) or Prior Quarter 

Adjustment Statement (PQAS). CMS 

expects manufacturers and States to 

work in partnership to resolve 

outstanding units in dispute. CMS has 

issued guidance on dispute resolutions 

and we encourage commenters to 

reference https://www.medicaid.gov/ 

sites/default/files/medicaid-chipprogram-information/by-topics/ 

prescription-drugs/downloads/rxreleases/mfr-releases/mfr-rel-105.pdf, 

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

files/medicaid-chip-programinformation/by-topics/prescriptiondrugs/downloads/rx-releases/mfrreleases/mfr-rel-095.pdf and https://

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

medicaid-chip-program-information/bytopics/prescription-drugs/downloads/ 

rx-releases/state-releases/state-rel181.pdf for dispute related issues. In 

addition, as noted previously, we 

believe the prompt notice of disputes 

will encourage States to resolve these 

issues in a timely manner. 

Comment: Several commenters 

emphasized that 340B Program-related 

audits may require more time than the 

proposed 12 quarters and suggest CMS 

should clarify and potentially adjust the 

rule’s applicability to ensure fairness in 

dispute processes. Multiple commenters 

opposed the proposed time limit, 

especially concerning 340B duplicate 

discounts, which take longer to identify 

and resolve and suggest exemptions or 

adjustments to the rule. Certain 

commenters also suggested that a 

manufacturer be allowed to toll the time 

to request necessary data from the State 

and during certain 340B disputes. 

Response: We believe that 

manufacturers should, within 12 

quarters from the invoice postmark date, 

initiate a dispute with or audit of a State 

for any disputes they may have with 

regard to 340B duplicate discounts. We 

understand that covered entities and 

their contract pharmacies work with 

their own third-party administrators 

(TPAs) that help to identify prescription 

claims as 340B within a few days, or at 

most a few weeks, well within the 12- 

quarter timeline that was proposed. 

Thus, the 12-quarter timeframe should 

be sufficient for identification of 340B 

claims and any disputes that may arise. 

CMS issued guidance to States and 

other interested parties in January 2020 

on Best Practices for Avoiding 340B 

Duplicate Discounts in Medicaid. We 

have previously outlined a number of 

best practices that States are encouraged 

to consider to avoid duplicate 

discounts.29 Additionally, our 12- 

quarter time audit initiation limitation 

aligns with HRSA’s limitation of actions 

provision in 85 FR 80632, which 

specifies that a covered entity or 

manufacturer must file a written claim 

for administrative dispute resolution 

with HRSA within 3 years of the date 

of the alleged violation. Furthermore, 

other proposals in this regulation will 

help with that process, such as the 

proposal to include BIN/PCN numbers 

on Medicaid managed care enrollee 

identification cards for pharmacy 

benefits. Finally, we are finalizing that 

all audits must be initiated within the 

12-quarter time period, not that all 

disputes are resolved within this 

timeline. We, therefore, do not believe 

a tolling provision is necessary. 

Comment: A few commenters 

recommended that if CMS’ proposed 12- 

quarter rule is finalized, it should only 

apply to future claims, ensuring 

manufacturers have time to address 

audits and disputes on past claims 

without hindrance and that State 

invoices received prior to the 

finalization of the rule would not be 

subject to the 12-quarter time limitation. 

Several commenters requested that if 

this policy is finalized, CMS should 

provide technical assistance on how to 

address outstanding disputes that were 

previously submitted but are beyond the 

proposed 12-quarter limit. 

Response: The 12-quarter timeframe 

was proposed, in part, to assist States 

that would otherwise be required to 

retain their drug utilization data 

indefinitely to verify changes in rebate 

amounts resulting from retroactive 

manufacturer recalculations. Unlike 

manufacturers that can make reasonable 

assumptions regarding data and 

reporting that occur beyond their record 

keeping requirements, States must be 

able to provide specific drug unit data 

related to utilization. Ideally, as we have 

stated, disputes should be raised and 

resolved promptly before the invoice is 

paid by the manufacturers. However, 

manufacturers can, and do, raise 

disputes after payment is made, 

sometimes even years later. The current 

lack of a clear time limit means 

previously settled invoices, 

transactions, and payments might not be 

settled in actuality given potential new 

or additional disputes. Having an 

unlimited period to initiate disputes is 

inconsistent with the proper and 

efficient operation of the rebate 

program. 

In addition, when a dispute 

concerning a possible provider billing 

error arises, the passage of time makes 

investigation and correction by the State 

more difficult. Claims data may not be 

available after a number of years; States 

have reported they have trouble 

retrieving older claims data because 

system upgrades have made accessing 

old data and paper claims difficult or 

impossible. The provider may not have 

records for the claim anymore because 

the record keeping requirements do not 

require them to continue to retain the 

records, making resolving disputes 

unnecessarily complicated. Thus, 

establishing a time limit for 

manufacturers to initiate disputes will 

increase the efficiency of dispute 

resolutions as well as the administration 

of MDRP. For this reason, this provision 

should apply to all newly initiated 

rebate disputes, regardless of when the 

claim was processed; any claim 

currently in the dispute resolution 

process would not be affected. Rather, 

under the 12-quarter time limit, a 

manufacturer may only initiate a 

dispute, request a hearing, or seek an 

audit of a State regarding State drug 

utilization data during a period not to 

exceed 12 quarters from the last day of 

the quarter from the postmark date of 

the State invoice. 

Comment: Commenters stated that 

CMS’ 12-quarter time limit proposal 

lacks operational feasibility and raised 

concerns the proposal may limit the 

ability of manufacturers to ensure 

accuracy of drug unit utilization data 

received from the States. 

Response: Currently, the lack of time 

limit on rebate dispute initiation by 

manufacturers is creating operational 

challenges for both States and 

manufacturers. We believe this creates 

long-term operational feasibility 

challenges for States, and burdens 

resources that would be better used 

towards patient care. During the dispute 

resolution process, claims-level detail is 

normally required from the States to 

assist in resolving a dispute; however, 

States often do not have such data 

available to provide to manufacturers 

beyond a limited timeframe. States need 

this source data when manufacturers 

request further proof to resolve disputes. 

Such claim data may not still be 

available after a fixed number of years, 

and the lack of a definitive timeline for 

initiation of disputes on drug utilization 

data unreasonably burdens programs. 

After considering the issues raised by 

the commenters, we are finalizing this 

provision as proposed except that we 

are amending the language to clarify 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79061 

that the 12 quarters begin based on the 

postmark date: A manufacturer may 

only initiate a dispute, request a 

hearing, or seek an audit of a State 

regarding State drug utilization data, 

during a period not to exceed 12 

quarters from the last day of the quarter 

from the postmark date of the State 

invoice. As noted in our previous 

responses, we understand that in certain 

instances the resolution of a dispute 

may extend beyond this time period, 

and we clarify that we are not requiring 

that disputes are resolved within this 

time period. 

J. Proposal Regarding Drug Price 

Verification Through Data Collection 

(§ 447.510) 

Section 1927(b)(3)(B) of the Act 

authorizes the Secretary to ‘‘survey 

wholesalers and manufacturers that 

directly distribute their CODs, when 

necessary, to verify’’ the prices that 

manufacturers are reporting under 

section 1927(b)(3)(A) of the Act, and in 

accordance with § 447.510. Under this 

authority, we proposed rules to describe 

those situations when it would be 

considered necessary for such surveys 

to be sent to manufacturers and 

wholesalers, and the information that 

would be requested that we would use 

in order to verify the reported prices at 

issue. We stated our intent that the 

proposed surveys would help assure 

that Medicaid payments and applicable 

rebate payments for CODs are accurate. 

As we noted in the preamble to the 

proposed rule, currently, there is no 

centralized process to collect specific 

data from manufacturers (or 

wholesalers) to verify prices 

manufacturers report to us under 

section 1927(b)(3)(A) of the Act. We 

proposed to interpret the language in 

section 1927(b)(3)(B) of the Act to 

provide authority to verify prices and 

charges from wholesalers and 

manufacturers that distribute their own 

drugs, including when the manufacturer 

distributes drugs directly to pharmacies 

and other providers. In other words, we 

stated that we believe this provision is 

meant to allow the Secretary to verify 

prices reported in both situations in 

which a manufacturer sells to 

wholesalers and/or distributes them 

directly on their own to purchasers. 

We noted in the proposed rule that 

participating manufacturers are required 

to report and certify to CMS certain 

product and pricing data for each of 

their CODs on a monthly and quarterly 

basis. The COD pricing and product 

information is primarily used for the 

determination of the quarterly Medicaid 

drug rebates paid by participating 

manufacturers, but also serves as the 

basis for Medicaid payment for CODs. 

For example, the AMPs that are reported 

to the agency are used in the calculation 

of the Medicaid Federal Upper Limits 

(FULs) for payment of certain multiple 

source CODs under section 1927(e)(5) of 

the Act. The 340B Program uses the 

AMP and the Unit Rebate Amount 

(which is the amount calculated to 

determine the quarterly Medicaid rebate 

for each dosage form and strength of a 

COD and is based in part on AMP) to 

calculate the 340B ceiling price. Many 

States require that 340B entities are paid 

no more than the 340B ceiling price, 

plus specified professional dispensing 

fees for CODs dispensed by 340B 

entities. Additionally, many State 

Medicaid programs use the ASP (as 

defined in section 1847A(c) of the Act) 

and the Wholesale Acquisition Cost (as 

defined in section 1847A(c)(6)(B) of the 

Act) for Medicaid payment for 

physician administered drugs, such as 

those administered in hospital 

outpatient departments and physician 

offices. Thus, we noted that it is 

important, particularly in the case of 

high cost drugs, that CMS have the 

ability to verify, in certain situations, 

the manufacturer’s submitted pricing 

data to ensure its accuracy, given the 

foregoing ramifications. 

We also proposed to publish nonproprietary information that we receive 

from the manufacturer through the drug 

price verification survey. We noted our 

belief that our proposed drug price 

verification survey process and the 

publication of non-proprietary 

information, along with the NADAC that 

we publish for retail community 

pharmacy costs, should provide the 

public with an understanding of how 

CMS is implementing its authority to 

understand how a manufacturer 

determines and verifies its reported 

pricing for its CODs. We also noted that 

our proposal would also provide 

information on the methods 

manufacturers use to produce accurate 

price information. We indicated that 

Medicaid managed care plans may be 

able to use such public information 

about the accuracy of prices or charges 

that are collected under this process in 

providing drug benefits if covered under 

their contracts. 

For the foregoing reasons, we 

proposed to use the statutory authority 

in section 1927(b)(3)(B) of the Act to 

collect additional information about 

charges and prices from manufacturers 

and wholesalers to verify the prices 

reported to us for CODs. We stated our 

belief that this verification is extremely 

important, particularly in the case of the 

significant number of new high-cost 

drugs and biologics, including cell and 

gene therapy drugs, entering the market, 

as well as the costs and prices 

associated with new and different 

pharmaceutical preparation methods 

and distribution channels. We indicated 

that it is critical to ensure that pricing 

information associated with these 

products is accurate so that State 

Medicaid programs receive the full 

rebate amounts to which they are 

entitled. Assuring States obtain accurate 

rebates can make these products more 

affordable and thus more accessible to 

patients. In addition, we noted that the 

increasingly complex pharmaceutical 

distribution supply chain has made it 

more challenging for manufacturers to 

calculate, and for CMS and States to 

monitor the accuracy of, pricing 

information reported under section 1927 

of the Act. Thus, we stated that the 

verification survey is needed to help 

ensure that such calculations are being 

done correctly, given the significant 

implications for MDRP rebate amounts 

and Medicaid payments. 

In the preamble to the proposed rule, 

we underscored that the proposed drug 

price verification survey is not intended 

to limit or deny access to any of the 

CODs included on the survey list, assess 

cost effectiveness of such drugs, or 

supplant findings from the applicable 

FDA approval process. We noted that 

we would not be using the survey data 

to assess either the clinical or cost 

effectiveness of the COD. Furthermore, 

neither the selection of CODs subject to 

the survey, nor the information 

collected in response to a survey under 

this proposal, would impact coverage of 

a COD consistent with section 1927 of 

the Act, or supplant any of the Federal 

requirements established under section 

1927 of the Act and the implementing 

regulations at 42 CFR part 447, subpart 

I. 

Therefore, we proposed at 

§ 447.510(k)(1) to use the authority 

granted to the Secretary under section 

1927(b)(3)(B) of the Act to survey 

manufacturers with rebate agreements 

in effect with the Secretary to verify 

prices or charges for certain CODs for 

which drug product and pricing 

information is submitted under section 

1927(b)(3)(A) of the Act and § 447.510, 

to make payment for the COD. 

We appreciate the thoughtful 

comments we received on this issue, 

and we determined not to finalize the 

proposed policy at this time. We are 

continuing to review the input provided 

by commenters, which may inform 

future rulemaking on this topic. 


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79062 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

30AAC is defined at § 447.502 to mean the 

agency’s determination of the pharmacy providers’ 

actual prices paid to acquire drug products 

marketed or sold by specific manufacturers. 

K. Proposals Related to State Plan 

Requirements, Findings, and 

Assurances (§ 447.518) 

In the proposed rule, we included 

provisions to clarify the data 

requirements that States must submit to 

establish the adequacy of both the 

current ingredient cost and the 

professional dispensing fee 

reimbursement under Medicaid FFS. As 

background, we noted in the preamble 

to the proposed rule that section 

1902(a)(30)(A) of the Act requires that 

States include in their State plans, 

methods and procedures to ensure that 

payments to providers are consistent 

with efficiency, economy, and quality of 

care and are sufficient to enlist enough 

providers so that care and services are 

available to the general population in 

the geographic area. We also reminded 

States that, under that authority, the 

Secretary issued Federal regulations at 

§§ 447.502, 447.512, and 447.518 that 

further elaborate that generally, 

payments to pharmacies for drugs that 

they dispense, and that are paid for 

under the State plan, are to be based on 

a two-part formula which consists of: (1) 

the ingredient cost of the drug that is 

dispensed based on the actual 

acquisition cost (AAC); 30 and, (2) a 

professional dispensing fee (PDF) for the 

drug based on the pharmacy’s cost of 

dispensing. 

As additional background to support 

our proposal, we pointed to existing 

policy requirements that the 

reimbursement formulas and any 

proposals to change either or both 

components of the reimbursement 

formula are subject to review and 

approval by CMS through the State plan 

amendment (SPA) process. We noted 

that, in SPA submissions, States must 

provide adequate data, such as a State 

or national survey of retail pharmacy 

providers or other reliable data (other 

than a survey) to support any proposed 

changes to either or both of the 

components of the reimbursement 

methodology. We also noted that while 

States are afforded the flexibility to 

adjust their reimbursement 

methodology through the SPA process 

in accordance with the requirements of 

sections 1902(a)(30)(A) and 1927 of the 

Act, they must substantiate how their 

reimbursement to pharmacy providers 

reasonably reflects the actual cost of the 

ingredients used to dispense the drug, 

and the actual costs of dispensing the 

drug, consistent with the regulatory 

definitions of AAC and professional 

dispensing fee. 

With this background, we explained 

in the proposed rule that recently we 

have seen States submit proposed 

changes to either or both of the 

components of the reimbursement 

methodology without adequate 

supporting data that reflect current drug 

acquisition cost prices or actual costs to 

dispense, which is inconsistent with 

applicable law and regulations. We also 

affirmed that the PDF should be based 

on pharmacy cost data, and not be based 

on a market-based review, such as an 

assessment or comparison of what other 

third-party payers may reimburse 

pharmacies for dispensing 

prescriptions. We stated that a State’s 

periodic review and examination of 

market-based research for a comparison 

of what other payers reimburse for 

dispensing costs is an insufficient basis 

for determining or proposing changes to 

professional dispensing fees because it 

does not reflect actual costs to 

pharmacies to dispense prescriptions. 

We noted that States must submit 

adequate cost data to CMS as part of its 

SPA process to justify its professional 

dispensing fee amounts and that the 

data submitted cannot rely on the 

amounts that pharmacies are accepting 

from other private third-party payers. 

Similarly, with respect to 

reimbursement of drug ingredient costs, 

which must be consistent with AAC, we 

affirmed in the preamble to the 

proposed rule that States must support 

determinations or proposed changes for 

ingredient cost reimbursement with 

adequate cost-based data. We cited 

previous rules and guidance, which 

provide ways States could establish 

pharmacy reimbursement 

methodologies, noting that the pricing 

benchmark that CMS makes available to 

States, for example the weekly NADAC 

files, reflect current prices. We also 

noted that freezing NADAC or AAC 

rates, and establishing a static provider 

reimbursement, would not be consistent 

with applicable laws and regulations 

and that reduced beneficiary access to 

medically necessary drugs could result 

if pharmacy providers are unable to 

purchase drugs at a rate reflective of 

current market conditions. 

For these reasons, we proposed to 

clarify the data requirements that States 

must submit to establish the adequacy 

of both the current ingredient cost and 

the professional dispensing fee 

reimbursement. Specifically, a State 

must submit adequate cost-based data to 

support any proposed changes to either 

or both of the components of the 

reimbursement methodology and a State 

cannot rely on the amounts that 

pharmacies are accepting from other 

third-party payers as a means of 

determining professional dispensing 

costs. Rather, the data that are 

acceptable could be a State’s own 

survey, a neighboring States’ survey, or 

other credible survey data that reflect 

the current cost of dispensing a 

prescription in the State (81 FR 5311). 

Additionally, to pay based on costs, we 

clarified that States need to periodically 

assess whether current rates being paid 

to pharmacies reflect current costs, 

noting that there is no specific 

requirement as to how often and when 

States must review their current fees. 

We therefore proposed to update the 

heading of § 447.518(d) heading to be 

‘‘Data requirements’’ and to revise 

paragraph (d)(1) to specify these 

requirements in the regulatory text. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Several commenters 

provided general support statements for 

the proposed updates to the data 

reporting requirements in § 447.518 

regarding State plan requirements, 

findings, and assurances, which will 

ensure patient access and appropriate 

pharmacy reimbursements. 

Response: We appreciate receiving the 

comments in support of this proposal. 

Comment: One commenter agreed 

with the proposed rule and stated that 

if pharmacies are unable to successfully 

acquire drugs at a rate reflective of the 

current market, there would be a ripple 

effect, such as limited beneficiary access 

due to pharmacy closures, and a 

negative impact on health equity for 

these vulnerable populations. 

Response: We agree with the 

commenter. To ensure beneficiaries can 

access pharmacy services, CMS reviews 

each State’s SPA to ensure that the 

reimbursement methodologies are 

established in accordance with 

applicable Federal provisions so that 

payments to providers are consistent 

with efficiency, economy, and quality of 

care, and are sufficient to enlist enough 

providers so that care and services are 

available to the general population in 

the geographic area. 

Comment: Several commenters 

recommended that CMS consider 

outlining how often States should assess 

if the pharmacy reimbursement rates 

accurately reflect current costs or other 

mechanisms to collect reliable data to 

ensure rates are current and adequate 

for pharmacies. Another commenter 

stated that an annual assessment is not 

realistic or feasible, and recommended 

that CMS consider requiring that States 

conduct a periodic assessment at least 


khammond on DSKJM1Z7X2PROD with RULES3
Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79063 

31HCPCS is a collection of standardized codes 

that represent medical procedures, supplies, 

products and services. The codes are used to 

facilitate the processing of health insurance claims 

by Medicare and other insurers. HCPCS is divided 

into two subsystems, Level I and Level II. Level I 

is comprised of Current Procedural Terminology 

codes (HCPT). Level II HCPCS codes identify 

products, supplies, and services not included in 

CPT. 

32 In its report titled ‘‘Medicaid Rebates for 

Physician Administered Drugs’’ (April 2004, OEI– 

03–02–00660), the Office of Inspector General (OIG) 

reported that of the 17 States that collected drug 

manufacturer rebates for physician-administered 

drugs in 2001, 3 collected rebates on all physicianadministered drugs. These three States used NDC 

codes for billing and the remaining 14 States used 

HCPC codes. These 14 States cross walked HCPC 

codes to NDC codes for single-source drugs and 

collected rebates on these drugs only. 

every 2–3 years to reflect current costs, 

but not less than 2 years. 

Response: We appreciate the 

commenters’ suggestions. CMS is not 

requiring that a State conduct a cost of 

dispensing study on an annual basis or 

any defined period of time. If the State 

proposes a change to the ingredient cost 

reimbursement methodology, the State 

must also review the adequacy of their 

current professional dispensing fees. 

While this final rule is not designed to 

mandate the frequency at which States 

should update their current professional 

dispensing fees, we encourage States to 

undertake a periodic assessment of 

whether pharmacy dispensing costs 

have changed, especially if there is a 

change to the ingredient cost such that 

the State should consider conducting a 

cost of dispensing study to comply with 

Federal regulations. 

Comment: A commenter 

recommended enhanced professional 

dispensing fees for 340B prescriptions 

to ensure adequate reimbursement. The 

commenter specifically requested that 

CMS encourage States to consider 

enhanced professional dispensing fees 

for 340B prescriptions to ensure the 

adequacy of pharmacy reimbursement 

for 340B covered entities and contract 

pharmacies. 

Response: We appreciate the 

recommendation regarding enhanced 

professional dispensing fees for 340B 

drugs. States continue to have the 

ability to propose different professional 

dispensing fees for CODs, such as for 

specialty drugs, hemophilia drugs, 

generics, brand drugs, 340B drugs, etc. 

CMS will review the proposed rates 

through the SPA process to ensure that 

each State’s proposed reimbursement 

methodology meets Federal 

requirements under sections 

1902(a)(30)(A) and 1927 of the Act, and 

the implementing regulations, 

specifically at §§ 447.502, 447.512, and 

447.518. 

Comment: Two commenters disagreed 

with the proposal to require 

professional dispensing fees to be based 

on cost data, as opposed to marketbased research, and claimed that these 

proposals are unnecessary and 

redundant. One commenter was 

concerned that CMS’ proposed 

requirements divert the States’ limited 

resources away from other more 

pressing State Medicaid priorities and 

that CMS’ prohibition on the use of 

market-based reviews of professional 

dispensing fees is not accompanied by 

findings that the States’ approach is 

contributing to unsustainable 

dispensing fee reimbursement. Another 

commenter stated that imposing stricter 

standards for cost information in this 

case means that dispensing fees are 

treated differently than traditional 

Medicaid services. Conducting surveys 

or other research on cost-based data will 

be an added burden on States, and it 

may be difficult to obtain this 

information from providers as opposed 

to market-based research. 

Response: We understand the 

concerns raised by commenters; 

however, CMS has no reason to believe 

that the provisions provided in this final 

rule will divert the States’ limited 

resources away from other more 

pressing State Medicaid priorities. 

States are not required to complete their 

own cost of dispensing study. States can 

propose their professional dispensing 

fees based on a neighboring State’s 

survey or other credible survey data, as 

long as it is adequate and reflects the 

current pharmacy costs of dispensing a 

prescription in their State. 

CMS is requiring that the professional 

dispensing fee be based on pharmacy 

cost data, and not be based on a marketbased review. We believe that marketbased research is insufficient because it 

does not reflect actual costs to 

pharmacies to dispense prescriptions. 

Comment: Several commenters 

provided support for data used to 

determine professional dispensing fees 

and ingredient costs and offered 

suggestions on ways to better 

understand these costs and 

accommodate individual States’ needs. 

One commenter agreed that to the extent 

that a State is conducting a cost of 

dispensing study, it should be a 

transparent, comprehensive, and welldesigned tool that addresses a pharmacy 

provider’s cost to dispense the drug 

product to a Medicaid beneficiary. 

Several commenters expressed support 

for States to periodically assess if 

pharmacy reimbursement rates 

accurately reflect current costs, with 

suggestions for this assessment to occur 

every 2 to 3 years. 

Response: We agree that a State’s cost 

of dispensing survey should be 

transparent, comprehensive, and 

reflective of the pharmacy’s actual cost 

of dispensing. As stated earlier, we are 

currently not requiring that a State 

conduct a cost of dispensing survey 

based on any timeframe, but States must 

review their current professional 

dispensing fee whenever they propose 

to change their reimbursement 

methodologies to ensure it meets 

Federal requirements under sections 

1902(a)(30)(A) and 1927 of the Act, and 

the implementing regulations, 

specifically at §§ 447.502, 447.512, and 

447.518. 

After consideration of public 

comments on this provision, we are 

finalizing as proposed. 

L. Federal Financial Participation (FFP): 

Conditions Relating to PhysicianAdministered Drugs (§ 447.520) 

In the proposed rule, we included a 

provision that would clarify when 

States are required to invoice for rebates 

for PADs that are CODs. As background, 

we noted that, generally, PADs may 

satisfy the definition of a COD set forth 

under section 1927(k)(2) of the Act, 

subject to the limiting definition at 

section 1927(k)(3) of the Act, and that 

manufacturer rebates should be 

collected on these PADs. We noted that 

in the past, many PADs were classified 

by Healthcare Common Procedure 

Coding System (HCPCS) 31 codes 

(commonly referred to as J-codes), 

which group together different 

manufacturers of the same drug that 

have different NDC codes within the 

same J-code, making it impossible to 

know which manufacturer supplied the 

drug in question. We noted that these 

broad J-codes cannot be used to bill for 

rebates, as they do not identify the 

specific PADs NDC. Many providers 

were submitting only these HCPCS 

codes to the States, rather than the NDC 

of the specific PAD, making it difficult 

if not impossible for the State to bill for 

rebates.32

To help address this situation, and to 

improve a State’s ability to identify 

PADs that may be subject to rebates 

being invoiced, the Congress enacted 

section 6002 of the Deficit Reduction 

Act of 2005 (DRA) adding sections 

1927(a)(7) and 1903(i)(10)(C) to the Act 

to require States to collect and submit 

certain utilization data on certain PADs 

as a condition for FFP to be available in 

payments for these drugs, and to 

facilitate State collection of 

manufacturer rebates. More specifically, 

the DRA provisions required that for 

payment to be available under section 


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79064 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

33 86 FR 27498, May 6, 2016 (https://

www.govinfo.gov/content/pkg/FR-2016-05-06/pdf/ 

2016-09581.pdf). 

1903(a) of the Act for a COD that is a 

PAD, States had to provide for the 

collection and submission of utilization 

data and coding (such as J-codes and 

NDCs) for all single source PADs (after 

January 1, 2006) and multiple source 

drugs (after January 1, 2008) that are a 

top 20 high dollar volume PAD that 

appears on a published list (based on 

highest dollar volume dispensed under 

Medicaid identified by the Secretary, 

after January 1, 2007) in order for FFP 

to be available under section 1903 of the 

Act in the case of these drugs, and to 

assist the States in securing applicable 

Medicaid rebates for these drugs. 

We noted that the list of the top 20 

multiple source drugs may be modified 

year to year to reflect changes in such 

volume. (See section 1927(a)(7)(B)(i) of 

the Act.) Also, the statute required that 

only NDCs be used after January 1, 2007 

for billing for all PADs that are single 

source CODs or the 20 multiple source 

CODs on the list published by the 

Secretary, unless the Secretary specified 

that another alternative coding system 

be used, or the State obtains a ‘‘hardship 

waiver’’ under section 1927(a)(7)(D) of 

the Act. Further, if States are not 

collecting NDCs and submitting the 

appropriate utilization data for these 

drugs consistent with the foregoing 

requirements, FFP is not available in 

payments for the CODs at issue. In 

addition, States would be forgoing 

available manufacturer rebates for these 

drugs. 

We also noted that the regulations at 

§ 447.520 were established to 

implement these statutory provisions in 

the 2007 Medicaid Program; 

Prescription Drugs; Final Rule, 

specifying the conditions for FFP for 

PADs (72 FR 39142). Section 447.520(a) 

specifies that no FFP is available for 

PADs if the State has not complied with 

the foregoing requirements pertaining to 

submission of codes from its providers 

that allow it to appropriately bill 

manufacturers for rebates for PADs. For 

single source PADs, we noted that the 

requirement to submit appropriate 

coding went into effect as of January 1, 

2006, and specified under 

§ 447.520(a)(1) that States must require 

providers to submit claims for single 

source PADs using HCPCS or NDC 

codes to secure rebates. We also noted 

that § 447.520(a)(2) further specified 

that as of January 1, 2008, a State must 

require providers to submit claims for 

single source and the top 20 multiple 

source PADs identified by the Secretary, 

using NDCs. As such, under current 

§ 447.520(b), as of January 1, 2007, a 

State must require providers to submit 

claims for the top 20 multiple source 

drugs identified by the Secretary as 

having the highest dollar volume using 

NDC numbers to secure rebates, and 

§ 447.520(c) provided the opportunity 

for States that require additional time to 

comply with the requirements of the 

applicable laws and regulations to apply 

for an extension to comply with the 

requirements. We noted that we 

retained this regulatory language 

without modification in the 2016 COD 

final rule. See 81 FR 5322. 

In the proposed rule, we included a 

provision to update the regulatory 

language at § 447.520 to more 

specifically and accurately conform 

with the statutory requirements 

captured at section 1927(a)(7) of the Act. 

Specifically, in proposed § 447.520(a)(1) 

and (2), we outline the conditions under 

which FFP would be available for 

States, as related to the NDCs States 

must require providers to use in order 

for the State to secure rebates for PADs 

that are CODs. The proposed language 

clarified that rebates are only due for 

PADs that are CODs and specified that 

data must be submitted by providers in 

the State in order for States to receive 

FFP as stated under sections 

1927(a)(7)(A) and 1927(a)(7)(B)(i) of the 

Act and secure applicable rebates. In 

proposed § 447.520(a)(2), we also 

proposed that States be required to 

collect rebates on all multiple source 

PADs in the manner required under 

section 1927(a)(7) of the Act, for those 

20 identified under section 1927(b)(i) of 

the Act. We also similarly proposed at 

§ 447.520(b) that after January 1, 2007, 

a State would have to require providers 

to submit claims for all COD single 

source and all multisource PADs using 

NDC numbers to collect FFP and secure 

rebates. 

We also noted that States need to 

ensure that their Medicaid managed 

care plans report required drug 

utilization data in order for States to 

invoice manufacturers for rebates for 

CODs, consistent with § 438.3(s)(2) and 

(3), which were adopted in the 2016 

Medicaid Managed Care final rule.33

Additionally, we proposed at 

§ 447.520(c) to continue to publish the 

top 20 list of multiple source PADs on 

an annual basis, as statutorily required, 

but also stated our expectation that 

States would invoice rebates for all 

multiple source PADs that are CODs, 

not just those identified on this list. In 

summary, the proposed regulation 

would require States to require 

providers to submit NDCs for all 

multiple source PADs that are CODs, 

which would then be subject to 

manufacturer rebate invoicing, and not 

limit such rebate invoicing to those on 

the top 20 high dollar multiple source 

drug list subject to the statutory 

requirements in section 1927(a)(7) of the 

Act. As technology and systems are 

currently in place, we noted that this 

proposed regulation would reduce the 

administrative burden of monitoring 

any revisions to the top 20 multiple 

source PADs and allow States to invoice 

rebates for these PADs that are CODs. 

Since publication of the proposed 

rule, we have determined that we need 

to rely upon different statutory authority 

other than section 1927(d)(7) of the Act 

for our proposed requirements for 

multiple source drugs that are not 

among the 20 identified by CMS under 

section 1927(a)(7)(b)(i) of the Act and 

§ 447.520(c). This is because the 

statutory language in section 

1927(a)(7)(b)(ii) of the Act conditioning 

FFP on meeting its requirements, and 

the NDC code requirements in section 

1927(c) of the Act, only apply to the 20 

multiple source drugs identified under 

section 1927(a)(7)(b)(i) of the Act, and 

not to multiple source drugs not on that 

list. We accordingly are relying on our 

authority under section 1902(a)(4) of the 

Act to specify ‘‘methods of 

administration’’ that ‘‘are found by the 

Secretary to be necessary for the proper 

and efficient operation’’ of the State’s 

Medicaid State plan as authority for our 

proposal to extend the multiple source 

PAD requirements under section 

1927(a)(7)(B)(ii) and (C) of the Act that 

only apply to multiple source PADs 

identified under section 1927(b)(i) of the 

Act and § 447.520(c) to other multiple 

source PADs not so identified. Because 

requirements under section 1902(a)(4) of 

the Act are enforced under section 1904 

of the Act and regulations at § 430.435, 

we have revised the regulation text to 

provide that compliance with 

requirements in § 447.520 applicable to 

multiple source PADs not on the list of 

20 identified under section 1927(b)(i) of 

the Act and § 447.520(c) will be 

enforced under section 1904 of the Act 

and § 430.435. Finally, because the new 

requirements that apply to multiple 

source drugs not identified under 

section 1927(b)(i) of the Act and 

§ 447.520(c) are not effective until the 

effective date of this final rule, we have 

distinguished in the regulation text 

between these new requirements and 

those that took effect for the 20 

identified multiple source drugs in 

2006, 2007 or 2008. 

We received several public comments 

on this proposal. The following is a 

summary of the comments we received 

and our responses. 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79065 

34https://oig.hhs.gov/reports/all/2011/medicareatypical-antipsychotic-drug-claims-for-elderlynursing-home-residents/. 

35STAT Op-Ed by Christi A. Grimm & Julie K. 

Taitsman | Office of Inspector General | Government 

Oversight | U.S. Department of Health and Human 

Services (hhs.gov) https://www.statnews.com/2021/ 

03/01/why-drug-prescriptions-should-includediagnoses/ March,1 2021. 

Comment: Several commenters 

support the revisions to the existing 

regulatory language regarding the use of 

NDCs to identify PADs and expanding 

rebate invoicing beyond the top 20 highdollar volume list for multiple source 

drugs. Commenters agree this would 

increase transparency and allow States 

to obtain both manufacturer rebates and 

receive FFP for these CODs. One 

commenter stated that Medicaid 

managed care plans are in a position to 

require physicians to submit NDCs with 

medical claims for drugs administered 

in the provider office or an outpatient 

facility, which is consistent with 

Medicaid claims submission for medical 

benefit drugs. 

Response: We agree with the 

commenters that the policies we are 

adopting in this final rule will allow 

States to obtain both manufacturer 

rebates and FFP for reporting and 

invoicing NDC numbers for all single 

source and multisource PADs that are 

CODs administered under both the 

Medicaid FFS and Medicaid managed 

care programs. Additionally, since most 

State Medicaid programs currently 

require their providers to submit NDC 

numbers on PAD claims for all CODs 

that are single source or multiple source 

drugs, we anticipate the administrative 

burden to be minimal. We expect that 

Medicaid managed care plans will 

continue to review and implement 

policies that will ensure that prescribers 

are required to include NDC numbers on 

all PAD claims. 

Comment: One commenter noted that 

CMS and the Office of the National 

Coordinator for Health Information 

Technology (ONC) are moving in 

opposing directions when it comes to 

which drug codes to utilize when 

submitting claims. This commenter 

stated that the ONC HTI–1 proposed 

rule discusses the possibility of what 

they refer to as deprecating support for 

NDC codes in its certification programs 

in favor of always requiring the use of 

RxNorm for medications. Additionally, 

a commenter stated that if NDCs are 

required for any drug, they need to be 

supported by a certified health IT 

system. 

Response: We appreciate the 

comments about ONC’s HTI–1 proposed 

rule and use of RxNorm for exchanging 

information on clinical drugs to ensure 

there is no ambiguity when it comes to 

identical medications that have different 

names. We note that NDCs provide 

package-level information about drugs 

and are used by healthcare 

organizations when submitting claims 

for CODs and the vehicle used for State 

utilization reporting for rebate purposes. 

RxNorm does not separately capture 

drug manufacturer information and will 

not meet the needs of the MDRP 

involving direct manufacturer 

attribution of CODs, as NDCs are 

required for rebate purposes. The ONC 

Health IT Certification program 

establishes certification criteria for 

health IT products, which are generally 

used by health care providers in the 

provision of care. In the HTI–1 final 

rule, published on January 9, 2024, ONC 

finalized adoption of NDCs in 45 

CFR 170.207(d)(4) through a cross 

reference to 45 CFR 162.1002(b)(2) as 

referenced in 45 CFR 162.1002(c)(1) for 

the period on and after October 1, 2015 

(89 FR 1226). ONC also finalized 

adoption of the United States Core Data 

for Interoperability version 3 (USCDI 

v3), a standardized set of health data 

classes and constituent data elements, 

in 45 CFR 170.213 (89 FR 1210). In 

addition to requiring the use of RxNorm 

for medications, USCDI v3 added 

optional support for NDCs. As finalized 

in the HTI–1 final rule, USCDI version 

3 will be the only version of USCDI 

referenced in certification criteria for 

health IT under the ONC Health IT 

Certification Program beginning on 

January 1, 2026 (89 FR 1211), however, 

health IT developers may update their 

products to conform to USCDI version 3 

in advance of this compliance date. 

These actions will support the 

availability of NDCs within certified 

health IT products in alignment with 

finalized policies. 

Comment: Several commenters 

opposed this proposed regulation as it 

mandates submission of NDCs for all 

CODs, stating it will considerably 

intensify the administrative tasks for 

Medicaid providers. It was stated that 

this requirement that expands the 

claims for which NDCs must be reported 

could strain the already limited 

resources of 340B covered entities. 

Another commenter suggested requiring 

NDCs only for medications that cost 

above a certain dollar threshold to 

reduce administrative burden. 

Response: We appreciate the concerns 

stated by the commenters referencing 

the potential administrative burden to 

Medicaid providers to submit NDCs for 

all multiple source PADs that are CODs. 

However, since most State Medicaid 

programs currently require their 

providers to submit NDC numbers on 

their PAD claims for all CODs that are 

single source or multiple source drugs, 

we anticipate the administrative burden 

caused by this rule to be minimal. 

After consideration of public 

comments on this provision, we are 

finalizing with the revisions set forth 

previously in this section. 

M. Request for Information on Requiring 

a Diagnosis on Medicaid Prescriptions 

In the proposed rule, we noted that 

Medicaid COD prescription claims do 

not currently require a diagnosis as a 

condition for payment. When reviewing 

claims without a diagnosis, we noted 

that it is difficult for the pharmacist or 

the State to determine whether a drug is 

indeed being used for a medically 

accepted indication, and appropriately 

satisfies the definition of a COD, and 

therefore, is rebate eligible. We also 

noted that requiring a diagnosis on a 

prescription may provide more 

information to the dispensing 

pharmacist to enable counseling with a 

focus on drug-disease interaction, which 

may improve the beneficiary’s overall 

health. 

The proposed rule also noted a 2011 

OIG Medicare audit that discovered that 

without a diagnosis code, it is difficult 

for Part D sponsors to determine 

whether a drug claim is medically 

appropriate.34 OIG stated that without 

access to diagnosis information, CMS 

cannot determine the indications for 

which drugs were used. Although this 

audit referenced Medicare, the same 

issue is applicable to Medicaid 

prescriptions. If States are not aware of 

the diagnosis for which the medication 

is being used, they are unable to 

determine if the drug is being used for 

a medically accepted indication and 

cannot determine if they should bill for 

rebates or if coverage is mandatory. 

Additionally, an article written by the 

then Principal Deputy Inspector General 

(and now current Inspector General) and 

Chief Medical Officer from OIG 

advocated for a new mandate that 

physicians include a diagnosis code 

with prescriptions.35 In 2011, CMS did 

not concur with OIG’s finding, stating 

that diagnosis information is not a 

required data element of pharmacy 

billing transactions, nor is it generally 

included on prescriptions. 

We also noted in the proposed rule 

that since many prescriptions are being 

electronically prescribed, it may make it 

easier for prescribers to include a 

diagnosis. Further, we noted several 

instances in which we believed a 

diagnosis on a prescription could help 

States, including implementation of 

certain Medicaid programs and benefits 

in which they are eligible for enhanced 


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Federal matching funds, assistance to 

pharmacists to identify safety issues and 

ensuring prescriptions are appropriate, 

medically necessary, and not likely to 

result in adverse medical results, and 

assurance that Medicaid reimbursement 

is limited to drugs with medically 

accepted indications. 

Given the various perspectives, we 

assumed there would be many 

interested parties that would have views 

on a potential requirement to include a 

diagnosis on a prescription, including 

but not limited to patients, prescribers, 

pharmacists, States, and drug 

manufacturers. Thus, we specifically 

solicited comments on this topic, its 

impact on beneficiaries, providers, 

States, and Medicaid, and any 

operational implications. We were 

particularly interested in understanding 

the benefits and burdens of such a 

proposal and sought comments on how 

to mitigate the impact on beneficiaries 

and providers, and steps which would 

be needed by States to successfully 

implement a Medicaid requirement for 

diagnoses on prescriptions as a 

condition of FFP. We also requested 

comments regarding the potential 

impact of a policy to require Medicaid 

diagnoses on prescriptions on payment, 

health care quality, access to care, and 

program integrity. In addition, we 

requested comments on the potential 

impact of such a policy on beneficiary 

access to commonly used, medically 

accepted, compendia supported, offlabel uses of CODs. 

We received many public comments 

on this request for information on 

requiring a diagnosis on Medicaid COD 

prescription claims. The following is a 

summary of the comments we received 

and our response. 

Comment: A few commenters 

provided general support for the 

requirement of diagnoses on 

prescriptions; however, the majority of 

commenters stated their strong 

opposition to requiring diagnoses on 

prescriptions. These arguments focused 

mostly on administrative burden, 

potential information technology (IT) 

issues with delays in care, significant 

system alterations, stigma, and other 

complications. Several commenters 

stated that because of the technical and 

operational challenges of including a 

diagnosis on a prescription, it could also 

lead to manufacturers initiating 

unnecessary disputes. Furthermore, 

many commenters opposed the 

requirement of diagnoses on 

prescriptions due to possible impact on 

equitable access to care, including 

delays and denials in care, added 

burden to patients, exacerbation of 

already existing barriers to care, and 

overall reduction in care access. 

Response: We appreciate the 

comments received in response to the 

request for information on requiring a 

diagnosis on Medicaid prescriptions. 

After careful review and consideration 

of the public comments received, and 

due to the overwhelming number of 

comments that were opposed to this 

requirement, we are not pursuing this 

requirement in rulemaking at this time. 

We will continue to review the feedback 

we receive from interested parties and 

may address this issue in future 

rulemaking if appropriate. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995 (PRA) (44 U.S.C. 3501 et seq.), 

we are required to provide 60-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. For the 

purposes of 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 an 

information collection should be 

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

of the PRA requires that we solicit 

comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

Our May 26, 2023 (88 FR 34238) 

proposed rule (CMS–2434–P; RIN 0938– 

AU28) solicited public comment on 

each of the aforementioned issues for 

the following sections of the rule that 

contained collection of information 

requirements. Comments were received 

and are summarized and responded to 

later under sections III.B.1. 

(Identification and Notification to 

Manufacturer to Correct Drug 

Misclassification), III.B.2. (Definitions), 

III.B.3. (State Plan Requirements, 

Findings, and Assurances), III.B.4. 

(Federal Financial Participation (FFP): 

Conditions Relating to PhysicianAdministered Drugs), and III.B.6. 

(Standard Medicaid Managed Care 

Contract Requirements) of this final 

rule. 

A. Wage Estimates 

To derive average costs, we used data 

from the U.S. Bureau of Labor Statistics’ 

(BLS’) May 2023 National Occupational 

Employment and Wage Estimates for all 

salary estimates (https://www.bls.gov/ 

oes/current/oes_nat.htm#23-0000). In 

this regard, Table 2 presents BLS’ mean 

hourly wage, our estimated cost of 

fringe benefits and other indirect costs 

(calculated at 100 percent of salary), and 

our adjusted hourly wage. 

TABLE 2—NATIONAL OCCUPATIONAL EMPLOYMENT AND WAGES ESTIMATES

Occupation title Occupation 

code 

Mean hourly 

wage 

($/hr) 

Fringe benefits 

and other 

indirect costs 

($/hr) 

Adjusted 

hourly wage 

($/hr) 

Operations Research Analyst ............................................................................ 15–2031 45.96 45.96 91.92 

As indicated, we adjusted our hourly 

wage estimates by a factor of 100 

percent. This is necessarily a rough 

adjustment, both because fringe benefits 

and other indirect costs vary 

significantly from employer to 

employer, and because methods of 

estimating these costs vary widely from 

study to study. Nonetheless, we believe 

that doubling the hourly wage to 

estimate the total cost is a reasonably 

accurate estimation method. 

B. Information Collection Requirements 

(ICRs) 

1. ICRs Regarding Identification and 

Notification to Manufacturer To Correct 

Drug Misclassification (§ 447.509(d)(1) 

Through (4)) 

We added new paragraphs (d)(1) 

through (4) to § 447.509 to add new 


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36Physician-Administered Drug, Paperwork 

Reduction Act (PRA)—Identifying Medicaid 

Payment for Physician Administered Drugs (CMS– 

10215) OMB CONTROL NUMBER: 0938–1026. At 

the time the original PRA (November 5, 2007) was 

approved, collecting and submitting PAD data was 

a greater burden. At that time, patient records were 

retained primarily in paper, and claim submissions 

were made utilizing paper forms. Initial estimates 

were all made based on the standard of practice in 

2007. Since that time, subsequent PRA extensions 

have been approved; however, these versions did 

not address improved medical standards of practice 

with respect to record retention and billing, rulemaking requirements relating to including the NDC 

on the claim so States could bill for rebates (that 

Continued 

requirements relating to the process by 

which CMS would identify when a 

misclassification of a drug has occurred 

in MDRP and subsequently notify the 

manufacturer of the misclassified drug. 

A manufacturer’s effort to address the 

misclassification of its CODs is 

currently approved by OMB under 

control number 0938–0578 (CMS–367). 

The active collection considers the time 

and cost incurred by manufacturers 

when compiling and reporting, or 

changing, Medicaid drug product and 

price information on a monthly, 

quarterly, and on an as-needed basis. 

The burden may vary by manufacturer 

based on the extent to which they 

misclassify drugs and subsequently 

need to correct those misclassifications. 

The extent of the burden may also be 

impacted based on when the 

misclassification originally occurred. 

Since the manufacturer requirements 

and burden do not require any changes 

as a result of this rule, we are not 

making any changes under the 

aforementioned OMB control number. 

The manufacturer burden is subject to a 

regulatory impact analysis which can be 

found in the Regulatory Impact Analysis 

section in section IV. of this final rule. 

We received numerous public 

comments on these proposals, but very 

few, if any, addressed this burden. The 

following is a summary of the comments 

we received and our response. 

Comment: We received three 

comments that stated that requiring a 

manufacturer to correct 

misclassifications of CODs that occurred 

more than 10 years ago will be more 

difficult to address due to the 10-year 

record retention requirement. 

Response: Section 1927 of the Act 

specifies that rebates can be collected 

back to the effective date of that section 

of the Act. Thus, manufacturers must 

correct misclassifications back to the 

date of the misclassification so that 

correct rebates may be paid by the 

manufacturers on these misclassified 

drugs. As we note in other sections of 

this final regulation, manufacturers can 

make reasonable assumptions regarding 

their data for any period that extends 

beyond the 10-year record retention if 

such records are not available. 

After consideration of the public 

comments, we are finalizing 

§ 447.509(d)(1) through (4) as proposed, 

with the exception of making a 

modification to § 447.509(d)(4)(i), to add 

the following language at the end of that 

section: ‘‘In such case, the manufacturer 

must certify the applicable correction 

within 30 calendar days.’’ 

2. ICRs Regarding Definitions 

(§ 447.502) 

To further consider commenters’ 

concerns, we are not finalizing at this 

time our proposal to add a new 

paragraph (5) to the definition of 

manufacturer or § 447.510(h) or our 

proposal to add a new paragraph to 

§ 447.502 to define vaccine for purposes 

of the MDRP only. 

Consistent with our proposed rule, we 

do not believe that any of the following 

new terms or definition modifications 

and clarifications that are being 

finalized require any effort or impose 

burden on any public or private entities: 

(1) proposal to modify the definition of 

‘‘covered outpatient drug’’ (§ 447.502), 

(2) proposal to define ‘‘drug product 

information’’ (§ 447.502), (3) proposal to 

define ‘‘market date’’ (§ 447.502), (4) 

proposal to modify the definition of 

‘‘noninnovator multiple source drug’’ 

(§ 447.502), and (5) proposal to clarify 

§ 447.509(a)(6) through (9) and (c)(4) 

with respect to ‘‘other drugs’’. 

Consequently, none of the definition 

changes are subject to the requirements 

of the PRA. 

We received extensive public 

comments on these proposals; however, 

only a few address estimates of effort 

and burden. The following is a summary 

of the comments we received and our 

responses. 

Comment: Regarding the modification 

to the definition of COD, several 

commenters expressed their concerns 

regarding the lack of visibility that CMS, 

manufacturers, and States have into 

payer claims data to understand how 

drugs and associated services are 

itemized. One commenter suggested 

manufacturers would have to hire 

personnel to procure and assess claims 

data in order to verify rebate invoices 

from the State. A few commenters 

questioned the States’ ability to capture 

necessary data for bundled drugs on 

payer claims. One commenter noted the 

proposed definition of COD will serve to 

generate even more good faith disputes, 

given the greater challenge posed by 

generating and providing such claimslevel detail in relation to bundled 

payments, which will result in increases 

in disputed rebate claims and delayed 

payments to the States due to this longer 

validation time. 

Response: Manufacturers and States 

should have current procedures and 

practices in place regarding how they 

validate invoices for the purpose of 

paying claims, and thus billing 

manufacturers for rebates. We 

acknowledge that as a result of the 

clarification to the definition of COD in 

this rule, States may have to consider 

how they instruct providers to bill for 

certain drugs that are paid for under an 

all-inclusive rate, such that the State or 

the Medicaid managed care plan can 

identify CODs that would be eligible for 

rebates under inclusive payment 

models. 

Comment: One commenter stated that 

the proposed changes to § 447.502 

would result in a significant burden on 

the manufacturer and thus are subject to 

the requirements of the PRA. 

Response: The commenter did not 

describe the nature of the burden in any 

detail, so we are unable to provide a 

substantive response. 

Comment: Regarding the modification 

to the definition of COD, one 

commenter stated collecting NDCs and 

ingredient cost information and 

applying such information on Medicaid 

claims forms is both time-consuming 

and labor-intensive. CMS should, 

therefore, refrain from imposing more 

administrative burdens on providers. 

Response: We appreciate the 

comments regarding the potential 

burden to providers. Pursuant to their 

State plans, States have the discretion to 

choose which reimbursement 

methodology to employ and what drugs, 

if any, they will carve out from that 

methodology and directly reimburse for 

them. States also dictate the terms of 

what information is necessary from the 

provider in order for direct 

reimbursement to be executed. As of 

January 1, 2007, § 447.520 has obligated 

States to require that providers submit 

NDCs for physician-administered single 

source drugs and the 20 multiple source 

drugs identified by the Secretary. 

Additionally, we note that in section 

II.L of this rule, it is required that States 

provide for the collection of NDCs for 

all physician-administered single source 

drugs and multiple source drugs. 

However, since most State Medicaid 

programs currently require their 

providers to submit NDC numbers on 

their PAD claims for all CODs that are 

single source or multiple source drugs, 

we anticipate the administrative burden 

caused by this rule to be minimal.36


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is, CMS–2345–F, Medicaid Program; Covered 

Outpatient Drugs). 

Comment: We received a few 

comments suggesting that the proposed 

requirement to report drug product 

information monthly would place an 

unnecessary burden on both 

manufacturers and the Agency. 

Response: Section 1927(b)(3)(A)(v) of 

the Act states that manufacturers must 

report, not later than 30 days after the 

last day of each month of a rebate period 

under the agreement, such drug product 

information as the Secretary shall 

require for each of the manufacturer’s 

CODs. Currently, approved by OMB 

under control number 0938–0578 

(CMS–367), we require that certain drug 

product information be reported not 

later than 30 days after the date of 

entering into a rebate agreement, or, for 

newly introduced drugs, not later than 

30 days after the last day of month 

during which the new drug is 

introduced. Such drug product 

information is not required on a 

monthly or quarterly basis at this time. 

Unless future changes are made to the 

MDRP that require monthly or quarterly 

reporting of certain drug product 

information, we will not require 

repeated reporting. 

3. ICRs Related to State Plan 

Requirements, Findings, and 

Assurances (§ 447.518) 

The burden for submissions relating 

to § 447.518 is currently approved by 

OMB under control number 0938–0193 

(CMS–179 under attachment 4.19–B 

pertaining to the: methods and 

standards used for the payment of 

certain services, and methods and 

standards used for establishing payment 

rates for prescribed drugs). Since 

§ 447.518 of this rule clarifies the data 

requirements that States must submit to 

establish the adequacy of both the 

current ingredient cost and the 

professional dispensing fee 

reimbursement, this will not add any 

new or revised requirements or burden, 

we are not making any changes under 

that control number. 

The proposed rule had inadvertently 

identified the package as ‘‘CMS–10398 

#179’’. The correct CMS identification 

number is ‘‘CMS–179’’ as indicated 

previously in this section. The control 

number is correct in both instances. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: Several commenters 

expressed support for the use of 

pharmacy cost data to determine 

professional dispensing fees and 

ingredient costs and offered suggestions 

on ways to better understand these costs 

and accommodate individual States’ 

needs. One commenter agreed that to 

the extent that a State is conducting a 

cost of dispensing study, it should be a 

transparent, comprehensive, and welldesigned tool that addresses a pharmacy 

provider’s cost to dispense the drug 

product to a Medicaid beneficiary. 

Several commenters expressed support 

for States to periodically assess if 

pharmacy reimbursement rates 

accurately reflect current costs, with 

suggestions for this assessment to occur 

every 2 to 3 years. 

Response: We appreciate the 

commenters’ support. We agree that a 

State’s cost of dispensing survey should 

be transparent and comprehensive, and 

the results should reflect the pharmacy’s 

actual cost of dispensing a prescription 

and the ingredient cost of the drug. The 

survey must be based on actual 

pharmacy cost of dispensing data, not 

market-based data. As stated earlier, we 

are currently not requiring that a State 

conduct a cost of dispensing survey 

based on any timeframe, but States must 

review their current professional 

dispensing fee whenever they propose 

to change their reimbursement 

methodologies to ensure it meets 

Federal requirements under sections 

1902(a)(30)(A) and 1927 of the Act, and 

the implementing regulations, 

specifically at §§ 447.502, 447.512, and 

447.518. 

After consideration of the public 

comments, we are finalizing the 

proposed provisions without change. 

4. ICRs Relating to Federal Financial 

Participation (FFP): Conditions Relating 

to Physician-Administered Drugs 

(§ 447.520) 

We are updating § 447.520 to make it 

consistent with section 1927(a)(7) of the 

Act, and codifying the requirement that 

States must collect NDC information on 

all single and multiple source PADs that 

are CODs for the purposes of invoicing 

manufacturers for rebates, and ensuring 

that FFP is available, as appropriate. We 

are requiring that States must invoice 

for rebates for all PADs that are CODs. 

We will continue to publish the top 20 

high dollar volume list of multiple 

source PADs, as statutorily required, to 

provide a means of prohibiting Federal 

matching funds, as necessary, if States 

are not requiring the use of NDC codes, 

and thus not invoicing for rebates on 

these drugs. This will be applicable to 

all States; however, we believe this 

would cause minimal administrative 

burden because most States, based on 

their State Drug Utilization Data (SDUD) 

reported to CMS, are currently 

collecting NDC numbers for all CODs, 

including all single and multiple source 

PADs and invoicing manufacturers for 

rebates as applicable under OMB 

control number 0938–1026 (CMS– 

10215). Since the provisions will not 

add any new or revised requirements or 

burden, we are not making any changes 

under that control number. 

We received public comments on 

these proposals. The following is a 

summary of the comments we received 

and our response. 

Comment: Several commenters 

opposed this proposed regulation as it 

mandates submission of NDCs for all 

CODs, and they stated it considerably 

intensifies the administrative tasks for 

Medicaid providers. It was stated that 

this requirement, previously limited to 

single source PADs and the top 20 

multiple source PADs, could strain the 

already limited resources of 340B 

covered entities. Another commenter 

suggested requiring NDC numbers only 

for medications that cost above a certain 

dollar threshold to reduce 

administrative burden to States. 

Response: We appreciate the concerns 

expressed by the commenters 

referencing potential administrative 

burden to State providers to submit 

NDCs for all single source and multiple 

source covered outpatient PADs. 

However, since most State Medicaid 

programs currently require their 

providers to submit utilization data 

through use of NDC numbers for all 

CODs that are single source or multiple 

source drugs, including PADs, we 

anticipate the administrative burden to 

be minimal. 

After consideration of the public 

comments, we are finalizing the 

proposed provisions without change. 

5. ICRs Regarding Verification Survey of 

Reported CODs Through Data Collection 

(§ 447.510) 

We proposed at § 447.510(k) a process 

to survey manufacturers to verify prices 

and charges for certain CODs by 

requesting and collecting certain 

information about such prices and 

charges for a drug reported to us under 

section 1927(b)(3)(A) of the Act. The 

proposed survey instruments would 

have been submitted to OMB for review 

if the proposed rule was finalized and 

the corresponding survey instruments 

(one for requesting information from 

States as proposed under 

§ 447.510(k)(3)(ii) and (iii)(A), and 

another for surveying manufacturers). 

Through the proposed rule, we 

solicited comments to help us develop 

the manufacturer survey and the State 

survey and received some suggestions. 

However, we determined not to finalize 


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the proposed policy at this time. We are 

continuing to review the input provided 

by commenters, which may inform 

future rulemaking on this topic. The 

estimates included in the proposed rule 

regarding these survey instruments have 

been removed from the final rule. 

6. ICRs Regarding Standard Medicaid 

Managed Care Contract Requirements 

(§ 438.3(s)) 

The following changes regarding drug 

cost transparency in Medicaid managed 

care contracts will be submitted to OMB 

for approval under control number 

0938–1445 (CMS–10855). 

We are amending § 438.3(s) to require 

MCOs, PIHPs, and PAHPs that provide 

coverage of covered outpatient drugs to 

assign and exclusively use a unique 

Medicaid-specific BIN and PCN 

combination, and group number 

identifiers on all issued Medicaid 

managed care enrollee identification 

cards for pharmacy benefits. It is a 

standard business practice for the 

MCOs, PIHPs, and PAHPs to routinely 

issue enrollee identification cards for 

pharmacy benefits, even though there is 

no Federal requirement to issue such 

cards. The MCOs, PIHPs, and PAHPs 

routinely for all of their lines of 

business across the industry, to include 

commercial/private and public sector 

programs, such as Medicare and 

Medicaid. Since we believe that this is 

a standard business practice that is 

exempt from the PRA (see 5 CFR 

1320.3(b)(2)), we are not setting out 

such burden for managed care plans to 

program the new codes onto the cards 

and to issue such cards under this 

section of the preamble. The burden, 

however, is subject to a regulatory 

impact analysis, which can be found in 

the Regulatory Impact Analysis section 

in section IV. of this final rule. 

Comment: A few commenters noted 

the administrative burden of creating 

potentially thousands of unique BIN, 

PCN, and group number identifiers 

instead of the requirement using a BIN 

and PCN combination. Commenters also 

expressed concern regarding the 

administrative burden for assigning 

each enrollee with a unique BIN, PCN, 

and group number. 

Response: CMS is finalizing the rule 

to include this recommendation to 

require a BIN and PCN combination, 

along with a group number identifier, 

rather than unique numbers for each 

component. We agree that it would be 

administratively burdensome to require 

unique BINs and unique PCNs, along 

with a group identifier. The 

combination approach will achieve the 

intended result, while minimizing any 

potential administrative issues. 

Comment: One commenter stated that 

there would be a cost associated with 

reprinting pharmacy identification cards 

to meet with new requirement. Another 

commenter expressed concern regarding 

the potential operational burden for 

needing to reissue member ID cards to 

beneficiaries regarding the new BIN/ 

PCN requirement. 

Response: This final rule does not 

mandate reprinting or re-issuance of 

enrollee identification cards solely 

based on when a unique BIN and PCN 

combination and group number 

identifier is assigned, but rather reissuance of cards shall bear the unique 

identifiers upon routine card issuance. 

Plans are expected to fulfill these 

requirements within their standard 

business practices. 

The applicability date for the BIN and 

PCN combination, and group number 

identifier provision will be the first 

rating period for State contracts with 

MCOs, PIHPs, and PAHPs beginning on 

or after 1 year following the effective 

date of the final rule. 

Comment: One commenter stated that 

pharmacies submitting a 340B identifier 

on claims involves high administrative 

burden and financial risk and should be 

considered a last resort. 

Response: Inclusion of accurate 

submission clarification codes is a 

standard NCPDP guided practice for 

pharmacies to include additional 

information to the processor when 

submitting a claim. We do not believe 

the submission of accurate submission 

clarification codes is a burden outside of 

the normal current business practices. 

However, the inclusion of 340B 

identifiers on claims is outside the 

scope of this final rule. 

Additionally, the provision outlined 

in § 438.3(s)(8) requires that MCOs, 

PIHPs, and PAHPs that provide 

coverage of covered outpatient drugs 

that contract with any subcontractor for 

the delivery or administration of the 

covered outpatient drug benefit must 

require the subcontractor to report 

separately the amounts related to: 

(1) The incurred claims described in 

§ 438.8(e)(2), such as reimbursement for 

the covered outpatient drug, payments 

for other patient services, and the fees 

paid to providers or pharmacies for 

dispensing or administering a covered 

outpatient drug; and 

(2) Administrative costs, fees, and 

expenses of the subcontractor. 

We estimate that the reporting 

requirements would affect 282 managed 

care plans and 40 States. We further 

estimate that it would take an 

Operations Research Analyst at the State 

level, 25 hours at $91.92/hr to revise 

282 managed care contracts to require 

those plans to comply with § 438.3(s)(8). 

In aggregate, we estimated a one-time 

burden of 1,000 hours (40 State 

responses × 25 hr/response) at a cost of 

$91,920 (1,000 hr × $91.92/hr). 

For the same contract changes 

between the managed care plans and the 

subcontractors (mainly PBMs), we also 

estimated a one-time private sector 

burden of 7,050 hours (282 managed 

care plans × 25 hr/response) at a cost of 

$648,036 (7,050 hr × $91.92/hr). 

With respect to the reporting burden, 

we estimate that for 282 PBMs of those 

282 managed care plans to separately 

report incurred claims e×penses 

described in § 438.8(e)(2) from fees paid 

for administrative activities will take 

appro×imately 2 hours annually to 

identify these costs separately and 

report separately to the managed care 

plans. In aggregate, we estimate an 

annual burden of 564 hours (282 PBMs 

× 2 hr/response) at a cost of $51,842.88 

(564 hr × $91.92/hr). 

We did not receive any comments 

regarding the proposed provisions and 

burden estimates. We are finalizing 

them in this rule without change. 

C. Summary of Burden Estimates 

In Table 3, we present a summary of 

this rule’s collection of information 

requirements and associated burden 

estimates. 

TABLE 3—SUMMARY OF BURDEN ESTIMATES

Regulatory 

section(s) 

under Title 

42 of the CFR 

OMB Control No. 

(CMS ID No.) Number respondents Total number of responses 

Time per 

response 

(hr) 

Total time 

(hr) 

Labor cost 

($/hr) 

Total cost 

($) 

§ 438.3(s)(8) .............. 0938–1445 (CMS–10855) .. 40 States ............................ 40 25 1,000 91.92 91,920 

§ 438.3(s)(8) .............. 0938–1445 (CMS–10855) .. 282 managed care plans .... 282 25 7,050 91.92 648,036 

§ 438.8(s)(8) .............. 0938–1445 (CMS–10855) .. Subcontractor PBMs of the 

282 managed care plans.

282 2 564 91.92 51,842.88 


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79070 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

TABLE 3—SUMMARY OF BURDEN ESTIMATES—Continued 

Regulatory 

section(s) 

under Title 

42 of the CFR 

OMB Control No. 

(CMS ID No.) Number respondents Total number of responses 

Time per 

response 

(hr) 

Total time 

(hr) 

Labor cost 

($/hr) 

Total cost 

($) 

Total ................... 322 (40 States + 282 managed care plans).............................................. 604 Varies 8,614 91.92 791,798.88 

IV. Regulatory Impact Analysis 

A. Statement of Need 

The intent of this final rule is to 

implement several new legislative 

requirements relating to the operation of 

the MDRP and other program integrity 

and program administration proposals. 

For example, section 6 of MSIAA was 

signed into law on April 18, 2019. 

Section 6 of MSIAA amended sections 

1903 and 1927 of the Act to grant the 

Secretary additional authorities needed 

to address drug misclassification, drug 

pricing, and product data misreporting 

by manufacturers for purposes of the 

MDRP. The final rule includes policies 

to implement these new statutory 

authorities, as required. 

The regulation also aims to 

implement a provision in section 9816 

of the American Rescue Plan Act of 

2021, which amended section 

1927(c)(2)(D) of the Act, by inserting a 

sunset date on the limitation on the 

maximum rebate amount for single 

source and innovator multiple source 

drugs, and other drugs. 

We are finalizing several important 

MDRP program administration and 

integrity policies such as: implementing 

a time limitation on manufacturer 

disputes and audits with States 

regarding rebates. The final rule also 

specifies a number of existing policies 

including: the requirements for State 

reimbursement for prescribed drugs and 

the conditions relating to payment of 

FFP for PADs that are CODs dispensed 

and paid for under the State plan. 

The final rule includes two new 

requirements for the contracts between 

States and their Medicaid managed care 

plans, specifically MCOs, PIHPs, and 

PAHPs. That is, States would be 

required to include in their contracts 

with MCOs, PIHPs, and PAHPs a 

requirement that each Medicaid 

enrollee’s identification card used for 

pharmacy benefits would include a 

unique Medicaid-specific BIN and PCN 

combination, along with a group 

number. The applicability date of these 

unique Medicaid-specific BIN and PCN 

combinations on the enrollee 

identification cards will be the first 

rating period for contracts with MCOs, 

PIHPs, and PAHPs beginning on or after 

1 year following the effective date of the 

final rule. This requirement would 

assist providers in identifying patients 

as Medicaid beneficiaries. 

In addition, we are finalizing that 

Medicaid MCO, PIHP, or PAHP 

(managed care plans) that contract with 

any subcontractor for the delivery or 

administration of the covered outpatient 

drug benefit must require the 

subcontractor to report separately to the 

MCO, PIHP, or PAHP incurred claims 

and administrative costs, fees, and 

expenses of the subcontractor. 

Moreover, we are also finalizing 

additional program integrity and 

administration policies, including 

amending the regulatory definition of 

noninnovator multiple source drug; 

adding regulatory definitions of a 

manufacturer’s internal investigation, 

drug product information, and market 

data; and modifying the definition of 

COD. Included was also a provision not 

directly related to MDRP, that is, a 

proposed revision to third-party liability 

regulation resulting from statutory 

changes in the BBA 2018. 

On May 17, 2022, the United States 

District Court for the District of 

Columbia vacated and set aside the 

accumulator provisions within the 2020 

final rule. The 2020 final rule required 

manufacturers to ‘‘ensure’’ the full value 

of the assistance provided by patient 

assistance programs is passed on to the 

consumer, and that the pharmacy, agent, 

or other AMP or best price eligible 

entity does not receive any price 

concession, before excluding such 

amounts from the determination of best 

price or AMP. In response to the district 

court’s order, we are withdrawing the 

changes made to these sections by the 

2020 final rule. 

We received public comments on 

these provisions. The following is a 

summary of the comments we received 

and our responses. 

Comment: One commenter stated the 

regulatory burden of the rule will stifle 

innovation. 

Response: We do not believe the 

regulatory burden of the rule will stifle 

innovation. Rather, we believe our 

policies as contained in this final rule 

(including BIN/PCN on cards, drug cost 

transparency in Medicaid managed care 

contracts, etc.) will help promote 

transparency, flexibility, and innovation 

in the operation of the Medicaid Drug 

Rebate Program. 

B. Overall Impact 

We have examined the impacts 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), Executive Order 14094 entitled 

‘‘Modernizing Regulatory Review’’ 

(April 6, 2023), the Regulatory 

Flexibility Act (RFA) (September 19, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security 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 the Congressional 

Review Act (5 U.S.C. 804(2)). 

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). The Executive Order 14094 

entitled ‘‘Modernizing Regulatory 

Review’’ (hereinafter, the Modernizing 

E.O.) amends section 3(f)(1) of Executive 

Order 12866 (Regulatory Planning and 

Review). The amended section 3(f) of 

Executive Order 12866 defines a 

‘‘significant regulatory action’’ as an 

action that is likely to result in a rule: 

(1) having an annual effect on the 

economy of $200 million or more in any 

1 year (adjusted every 3 years by the 

Administrator of OIRA for changes in 

gross domestic product), or adversely 

affect in a material way the economy, a 

sector of the economy, productivity, 

competition, jobs, the environment, 

public health or safety, or State, local, 

territorial, or tribal governments or 

communities; (2) creating a serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raise legal or policy issues 

for which centralized review would 

meaningfully further the President’s 


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I I I 
Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79071 

37https://www.kff.org/medicaid/issue-brief/costsand-savings-under-Federal-policy-approaches-toaddress-medicaid-prescription-drug-spending/ 

#:∼:text=This%20estimate%20is%20based%20in,

between%20states%20and%20the%20Federal. 

priorities or the principles set forth in 

this Executive order, as specifically 

authorized in a timely manner by the 

Administrator of OIRA in each case. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

significant regulatory action/s and/or 

with significant effects as per section 

3(f)(1) ($200 million or more in any 1 

year). 

Based on our estimates, OMB’s Office 

of Information and Regulatory Affairs 

has determined this rulemaking is 

significant under section 3(f)(1). The 

Office of Information and Regulatory 

Affairs has also determined that this 

final rule meets the criteria set forth in 

5 U.S.C. 804(2) (Subtitle E of the Small 

Business Regulatory Enforcement 

Fairness Act of 1996, also known as the 

Congressional Review Act). 

C. Detailed Economic Analysis 

There is a need for greater clarity 

regarding some of the administrative 

policies of the MDRP, and this final rule 

aims to establish regulations to provide 

guidance to States, manufacturers, and 

other related parties. This final rule 

addresses these policy issues after 

considering the evolution of the 

pharmaceutical marketplace since the 

development of the MDRP, and the 

economic, social, and other factors 

affecting Medicaid providers and 

beneficiaries. At the same time, this 

final rule is mindful of the impact of 

changes in regulations on affected 

interested parties, and the degree of 

compliance issued by the agency. 

Therefore, for these reasons, we 

prepared the economic impact estimates 

utilizing a baseline of ‘‘no action,’’ 

comparing the effect of the proposals 

against not proposing the rule at all. 

If the provisions in the final rule are 

not implemented, there would be no 

specific policies in place in the MDRP 

related to the new legislative 

requirements in MSIAA, and no clear 

policies to address drug 

misclassification and drug product 

information misreporting by 

manufacturers. Accordingly, the final 

rule would address other situations in 

which manufacturers are paying fewer 

rebates to States than are supported by 

the pricing and product data that they 

are currently reporting to MDP. While 

we believe that most of the drugs in 

MDP are appropriately classified, we do 

not know an exact number of those 

which may be misclassified. For this 

reason, a robust analytical framework, 

with baseline scenarios and 

benchmarks, could not be conducted. 

Additionally, if the provisions are not 

implemented, there would be no 

regulatory policies for addressing the 

provision in the American Rescue Plan 

Act to sunset the date on the limitation 

on the maximum rebate amount paid by 

manufacturers for single source and 

innovator multiple source drugs, in 

addition to drugs other than single 

source and innovator multiple source 

drugs. 

At this time, program integrity and 

program administration provisions need 

to be proposed or specified to address 

the definitions for: covered outpatient 

drug (COD); drug product information; 

internal investigation; market date; and 

noninnovator multiple source drug. 

Moreover, currently there is a need to: 

establish a time limitation on 

manufacturer rebate disputes and audits 

with States; refine State requirements 

for State reimbursement for prescribed 

drugs; and specify conditions relating to 

payment for PADs. The reasons and 

rationales for these provisions were 

detailed in the preamble section of the 

proposed rule. The economic impacts of 

these provisions are detailed later in 

this section of the final rule. 

We solicited comments relating to the 

issues, benefits, and challenges of 

requiring a diagnosis be included on 

Medicaid prescriptions, as well as any 

current data and estimates that could be 

used to develop an analytical framework 

for the proposals in this final rule. 

1. Benefits 

The provision requiring that 

subcontractors of Medicaid managed 

care plans, such as PBMs or pharmacy 

benefit administrators (PBAs), report 

specific categories of drug expenditures 

to their contracted managed care plan 

will benefit States and Medicaid 

managed care plans, as it assures a more 

accurate calculation of plans’ MLRs and 

aids States in development of managed 

care plan capitation rates, resulting in 

more accurate Medicaid spending. As 

indicated in the proposed rule, the shift 

in policy to eliminate spread pricing in 

Medicaid managed care pharmacy 

programs has begun in many States. 

Therefore, the benefit associated with 

this final regulation, as we noted in the 

proposed rule, cannot be quantified at 

the national level. We do not have data 

on which States have done this already, 

that is, eliminated spread pricing, 

versus States that would need to 

implement this because of this final 

rule. 

However, we believe that the majority 

of States do not require their Medicaid 

managed care plans to include such 

PBM transparency language in their 

managed care contracts. For that reason, 

we do expect that implementation of 

this provision will result in savings to 

the Medicaid program, as States will 

have a better understanding of their 

pharmacy program spending and can 

make any adjustments accordingly. 

While this provision does not eliminate 

spread pricing in Medicaid, a March 

2020 Congressional Budget Office (CBO) 

estimate of the Federal proposal 37 to 

require pass through pharmacy pricing 

finds the spread pricing provision 

would produce Federal savings of $929 

million over 10 years, which translates 

to a less than 1 percent decrease in 

Federal Medicaid prescription drug 

spending. 

In regard to Medicaid Drug Rebates 

(MDR) and penalties for manufacturer 

misclassification of drugs, these 

provisions will implement MSIAA 

provisions related to misclassification. 

Finalization of the rule could result in 

monetary and non-monetary penalties 

against manufacturers, which are not 

quantifiable at this time. It could also 

benefit States if they receive any past 

rebates that are due to them as a result 

of a manufacturer’s misclassification of 

drugs. 

The majority of drugs are 

appropriately classified in the Medicaid 

Drug Programs (MDP) system at this 

time, but there may be some 

manufacturers that continue to list their 

drug as a noninnovator multiple-source 

drug in MDP, when the drug should be 

listed as a single-source drug or an 

innovator multiple source drug. The 

provision allows us to also pursue 

penalties against manufacturers that 

will not correct their misclassification 

and will also allow us to impose 

penalties on manufacturers that do not 

pay the unpaid rebates owed to the 

States as a result of the 

misclassification. 

Modifying the definition of covered 

outpatient drug will benefit the 

manufacturers, States, and CMS. The 

provision will support the States’ ability 

to collect rebates on drugs administered 

in certain settings when a drug and its 

reimbursement amount are separately 

identified on a claim and payment for 

the drug is made as direct 

reimbursement. This will make these 

therapies more affordable to States and 

increase beneficiary access to these 

medications. It will benefit 

manufacturers by providing clarity on 

drugs that would satisfy the definition 

of covered outpatient drug and for 

which compliance with section 1927 of 

the Act is required. This benefit is 

currently not quantifiable because we 


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do not know how many drugs this 

provision will affect. 

Finalizing the definition of internal 

investigation at § 447.502 for purposes 

of manufacturers making pricing metric 

revisions, as amended from the 

proposed definition, will benefit States 

and manufacturers. It will benefit 

manufacturers because it will provide a 

clear definition of what CMS views as 

an internal investigation for purposes of 

requesting CMS consideration of 

recalculation of AMP, best price, and 

customary prompt pay outside of the 12- 

quarter rule as permitted under 

§ 447.510. Additionally, defining this 

term will benefit States because it will 

deter manufacturers from submitting to 

CMS a request for a restatement of AMP, 

best price, and customary prompt pay 

discounts outside of the 12-quarter 

timeframe, which could trigger 

manufacturers seeking to collect 

overpaid rebates unexpectedly. The 

benefit of defining internal investigation 

as part of this final rule is not 

quantifiable as it is not known how 

many manufacturers will be deterred 

from submitting the request to restate 

outside of the 12-quarter timeframe. 

However, as noted in the proposed rule, 

we do not get these requests frequently. 

We did not receive any comments 

regarding the impact of the definition of 

internal investigation at § 447.502. 

We proposed to update the definition 

of manufacturer at § 447.502 and to add 

a new paragraph (h) in § 447.510 to 

further specify the responsibilities of a 

manufacturer. After consideration of 

public comments, we have opted not to 

proceed with finalizing the proposed 

definition of manufacturer at § 447.502 

and related changes in § 447.510(h) to 

further consider commenters’ concerns. 

The provision to define market date 

using the date of first sale, rather than 

the date first available for sale, will 

benefit some manufacturers, CMS, and 

States. Manufacturers will not be 

required to report AMP information 

until they have actual pricing data based 

on sales data to report. As a result, there 

will be decreased reliance by 

manufacturers to use reasonable 

assumptions to calculate and report 

AMP. CMS and States will also benefit 

because we will now have regulatory 

support for the longstanding policy of 

determining the baseline information for 

a drug based on the date the drug was 

first sold by any manufacturer. Some 

manufacturers have been incorrectly 

interpreting the market date of their 

drug as the date on which their NDC 

was first sold or marketed, regardless of 

any prior manufacturer’s marketing or 

sale of the same drug. That is, some 

manufacturers believe that they can 

reset the baseline information for a drug 

once they purchase the drug, which is 

not the case. 

States are likely to benefit from the 

provision to establish a 12-quarter 

rebate manufacturer dispute, hearing, 

and audit time limitation in § 447.510(i). 

While the NDRA addresses rebate 

disputes, the lack of policy on audit and 

dispute-initiation timeframes has been 

interpreted as there being no timeline 

on initiation of disputes on drug 

utilization data, unreasonably 

burdening State rebate programs. With 

this provision, States will no longer 

have to look back and research paper 

claims dating back to as early as 1991, 

which is the beginning of the MDRP. We 

estimate the provision will reduce the 

amount of time it will take States to 

research disputes on rebate claims since 

manufacturer disputes, hearing requests, 

and audits initiated after 12-quarters 

from the last day of the quarter from the 

date of State invoice will no longer be 

considered. 

Regarding the regulatory revisions 

regarding FFP for conditions relating to 

physician-administered drugs, these 

provisions will benefit States and the 

Federal Government. By revising the 

regulations to be consistent with the 

statute, States will gain a better 

understanding of the requirement that 

they must invoice for all covered 

outpatient single and multiple source 

physician-administered drugs. This 

final rule will help ensure that States 

will receive FFP for these PADs by 

requiring the collection of NDC numbers 

and provide additional rebate collection 

to increase State and Federal revenue. 

This benefit is not quantifiable because 

PAD utilization and costs vary among 

all State programs, but we believe that 

most if not all States are already billing 

for rebates for all PADs. 

The provision for inclusion of a BIN/ 

PCN combination, along with a group 

number identifier, on Medicaid 

managed care enrollee identification 

cards will benefit States, the Federal 

Government, providers, and 

manufacturers. With the inclusion of 

Medicaid-specific BIN/PCN 

combinations and group number 

identifiers on the pharmacy 

identification cards issued to the 

enrollees of MCOs, PIHPs, and PAHPs, 

pharmacies will be able to identify 

patients as Medicaid beneficiaries. This 

will be helpful to all parties to ensure 

that Medicaid benefits are applied 

appropriately. This will also help avoid 

duplicate discounts between Medicaid 

and the 340B Program, which occurs 

when a State bills for a Medicaid rebate 

on a discounted 340B drug, because it 

will provide notice to the provider that 

the claim should be identified as being 

for a 340B drug. This benefit is not 

quantifiable because it is currently 

unknown how often patients are not 

identified as Medicaid beneficiaries. 

The provision for drug cost 

transparency in Medicaid managed care 

contracts will benefit States and the 

Federal Government. It will assist 

Medicaid managed care plans in 

complying with Federal regulations 

regarding MLRs and guidance by 

effectively requiring subcontractors to 

appropriately identify and classify 

certain costs, so that the managed care 

plan can appropriately calculate their 

MLR. 

In particular, managed care plans that 

provide coverage of CODs must require 

the subcontractor to report separately 

the amounts related to the incurred 

claims described in § 438.8(e)(2) (such 

as reimbursement for the covered 

outpatient drug, payments for other 

patient services, and the fees paid to 

providers or pharmacies for dispensing 

or administering a covered outpatient 

drug) from administrative costs, fees 

and expenses of the subcontractor. By 

receiving reports that separately identify 

fees that are outside of the prescription 

and dispensing fee costs of a drug, the 

MCO, PIHP, or PAHP will be able to 

calculate and report its MLR more 

accurately. 

MLR calculations are used to develop 

capitation rates paid to Medicaid 

managed care plans; thus, their accuracy 

is critical in assuring that Medicaid 

payments are reasonable and 

appropriate. Managed care capitation 

rates must (1) be developed such that 

the plan will reasonably achieve an 85 

percent MLR (§ 438.4(b)(9)) and (2) are 

developed using past MLR information 

for the plan (§ 438.5(b)(5)). In addition 

to other standards outlined in §§ 438.4 

through 438.7, these requirements for 

capitation rates related to the MLR are 

key to ensuring that Medicaid managed 

care capitation rates are actuarially 

sound. In addition, Medicaid managed 

care plans may need to pay remittances 

to States should they not achieve the 

specific MLR target when a remittance 

is required by a State. Thus, the 

accuracy of MLR calculation is 

important to conserving Medicaid 

funds. 

The payment of claims provision will 

benefit States, the Federal Government, 

providers, and beneficiaries. This 

provision will benefit both the Federal 

Government and States as it corrects 

omissions in regulatory language to 

align with statutory language, 

permitting Medicaid to remain the payer 

of last resort. These revisions will also 

benefit beneficiaries and providers as 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79073 

they permit States to pay claims sooner 

than the specified waiting period, when 

doing so is cost-effective and necessary 

to ensure access to care. 

The proposal to clarify our 

longstanding policy to account for 

manufacturer stacking of discounts 

when determining best price is not 

being finalized at this time. Therefore, 

we will not be responding to any 

comments submitted on the impact of 

this specific proposal. 

2. Costs 

a. Manufacturer Misclassification of a 

Covered Outpatient Drug and Recovery 

of Unpaid Rebate Amounts Due to the 

Misclassification and Other Penalties 

In regard to the costs associated with 

this provision, if CMS identifies that a 

drug has been misclassified, the 

manufacturer will be responsible for 

paying any unpaid rebates to the States 

as a result of the misclassification. This 

will mean that the manufacturers will 

have to determine which prices to use 

to calculate the past due rebates and for 

which unit rebates are owed, and then 

pay the States the calculated rebate 

amount. They will also have to report to 

CMS that such rebates have been paid. 

In this situation, the States will not 

incur any new costs; rather it will help 

ensure that manufacturers are accurately 

paying rebates to States, thus benefitting 

the States. In some cases, the States may 

have to pay rebates back to the 

manufacturer if the manufacturer’s 

misclassification resulted in 

overpayment of rebates to the States. In 

this situation, the States would incur 

costs as they reimburse the 

manufacturer for the overpayment. CMS 

may be required to share in repayment 

of some of these rebates. 

The amount of rebates owed or 

collected by the manufacturers under 

these new regulatory misclassification 

provisions cannot be estimated. We 

cannot predict how many, if any, drugs 

are or will be misclassified and require 

payment of unpaid rebates. 

We did not receive public comments 

on this Regulatory Impact Analysis 

provision, and therefore, we are 

finalizing as proposed. 

b. Suspension of Manufacturer NDRA 

for Late Reporting of Pricing and Drug 

Product Information 

This provision will implement 

existing statute and is being 

implemented to encourage manufacturer 

adherence with program reporting 

requirements and enhance 

administrative efficiency. Manufacturers 

that are not reporting their pricing or 

product information in a timely manner 

per statutory and regulatory 

requirements will have their rebate 

agreement (and those of their associated 

labelers) suspended for purposes of 

Medicaid and the MDRP. This means 

that States will not have to cover or pay 

for the drugs of the manufacturer during 

the period of the suspension unless they 

are paid through their own State funds. 

Lack of timely reporting by 

manufacturers can also reduce rebates 

that are owed to States by a 

manufacturer and can affect the number 

of multiple source drugs for which 

Federal Upper Limits (FULs) can be 

established. Thus, this suspension 

authority will serve as an incentive for 

manufacturers to report their product 

and pricing information timely so that 

drugs of the manufacturer will continue 

to be covered under Medicaid and the 

MDRP. 

This provision will have minimal cost 

to the States as their only responsibility 

will be to notify prescribers and patients 

that a drug is not available under the 

MDRP for the period of the suspension. 

Similar to §§ 431.211 and 435.917, we 

required that States notify beneficiaries 

at least 30 days before a drug is no 

longer available because of a suspension 

of a manufacturer’s drug rebate 

agreement. Since States may choose 

their preferred method of notification of 

beneficiaries, including through email, 

form letters, list serves, or Medicaid 

portals, we solicited comments on how 

to develop a cost estimate. 

We did not receive public comments 

on this Regulatory Impact Analysis 

provision, and therefore, we are 

finalizing as proposed. 

c. Modified the Definition of Covered 

Outpatient Drug 

This provision may increase 

manufacturers’ rebate liability to the 

States because it will clarify those CODs 

that could be billed for rebates. At this 

time, we cannot determine an estimate 

of burden for manufacturers regarding 

this item because we do not have an 

estimate of the number of drugs that 

could potentially be billed for rebates as 

a result of this clarification. States only 

have to report utilization of drugs for 

which rebates are invoiced. If States 

were not invoicing for rebates for certain 

types of claims previously, we do not 

have quantifiable information about the 

additional rebates that may be now 

collected. Additionally, States may need 

to educate their providers on billing 

procedures. We believe this will involve 

minimal burden, as States could inform 

their providers as part of their regular 

communications. 

We received public comments on 

these Regulatory Impact Analysis 

provisions. The following is a summary 

of the comments we received and our 

responses. 

Comment: One commenter stated that 

CMS should undertake a formal 

regulatory impact analysis regarding the 

modification to the definition of covered 

outpatient drug to properly assess 

positive and negative effects. 

Response: As we stated in the 

proposed rule, we are unable to quantify 

what impact the modification to the 

definition of covered outpatient drug 

will have. However, this will clarify for 

States and manufacturers the 

application of the ‘‘direct 

reimbursement’’ part of the definition of 

COD and may assist in identifying 

utilization that qualifies for rebates in 

situations where States have not 

previously collected rebates. We 

accounted for the administrative costs of 

reviewing and interpreting this 

definition in the Regulatory Review 

section later in this rule. 

Comment: One commenter pointed 

out implementation challenges, 

including substantial changes to billing 

and claims systems to capture 

information about the specific services 

that are included in a bundled payment. 

They stated it would be extremely 

difficult to understand all of the 

scenarios where the payment for a code 

was inclusive of the drug 

reimbursement. 

Response: We intend for the 

modification to the definition to provide 

clarification regarding when a payment 

represents direct reimbursement for a 

drug. Based on the comments, though, 

it is evident that our proposed 

modification to the definition did not 

make this clear. In the past we have 

stated that no rebate liability attaches to 

drugs that are paid for as part of 

bundled payments. However, we have 

received questions from interested 

parties to define situations in which 

rebates can be billed for drugs that are 

part of inclusive payments in which the 

quantity of drug dispensed or 

administered can be identified. We are 

therefore modifying the proposed 

definition of direct reimbursement to 

make it clear that, for such rebates to be 

billed, the inclusive payment includes 

an amount directly attributable to the 

drug, where such amount is based on a 

reimbursement methodology that is 

included in the applicable section of the 

State plan. We believe that the 

modification to the proposed definition 

resolves the implementation concerns. 

After consideration of public 

comments, we are finalizing the 

provision with the amended language as 

set out at the end of this document. 


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d. Defined Internal Investigation for 

Purposes of Pricing Metric Revisions 

The cost of the final definition will be 

the amount of time that needs to be 

taken by manufacturer personnel to 

determine how to apply the definition 

of internal investigation when 

considering submitting a request to CMS 

for a recalculation. This legal analysis 

will not apply to every manufacturer or 

to every drug of the manufacturer. It 

will only apply if the manufacturer 

wants to submit a request for CMS to 

consider recalculation outside of 12 

quarters for one or more of its CODs. As 

stated in the proposed rule, we have 

received only a minimal number of such 

requests from manufacturers. We 

assumed the time to perform legal 

analysis is 5 hours. Using the May 2023 

mean (average) wage information from 

the BLS for lawyers (Code 23–1011), we 

estimated that the cost of reviewing this 

provision is $169.68 per hour, including 

fringe benefits and other indirect costs 

(https://www.bls.gov/oes/current/ 

oes231011.htm) with a total cost of 

($169.68 × 5), is $848.40 for each 

manufacturer. We estimated that only 

one percent of manufacturers will 

submit a request for a recalculation 

annually outside of the 12-quarters. One 

percent of 792 manufacturers is 

approximately 8 manufacturers, with a 

total one-time cost of $6,787.20 (8 × 

$848.40). We estimated one percent 

because currently only one 

manufacturer has submitted such a 

request. This provision will not impose 

substantial costs on the State. 

We received no public comments on 

these estimates associated with the 

definition of internal investigation. We 

are adopting a definition of internal 

investigation at § 447.502, as amended 

and discussed in section II.C.1.c. of this 

final rule. 

e. Revised Definition of Manufacturer 

for NDRA Compliance 

Several analyses and reviews were 

performed to better assess current 

manufacturer compliance with the 

requirement that a manufacturer have a 

rebate agreement in effect that includes 

all associated labeler codes. While this 

policy has already been specified in 

guidance and preambles, we are opting 

not to finalize the proposed definition of 

manufacturer and conforming changes 

in § 447.510 at this time to further 

consider commenters’ concerns. 

f. Define Market Date 

In regard to costs associated with 

defining market date, if manufacturers 

have not provided CMS with accurate 

market dates, they may need to develop 

a methodology to determine the 

accurate dates. That is because they may 

have assumed that the market date of 

the COD is the date that they purchased 

it, rather than the date the COD was sold 

by any manufacturer and may not have 

access to relevant pricing records before 

the date they purchased the drug. In 

addition, going forward, manufacturers 

will have to identify when their first 

sales of the COD occur to accurately 

identify the market date of the COD. At 

this time, we cannot determine cost 

estimates associated for this provision. 

This provision will not impose 

substantial costs on States. 

We did not receive public comments 

on this Regulatory Impact Analysis 

provision, and therefore, we are 

finalizing as proposed. 

g. Modify the Definition of 

Noninnovator Multiple Source Drug 

This provision proposed a technical 

correction to the regulatory text to 

conform the language in the definition 

of an N drug to the language in the 

definition of an I drug. We do not 

anticipate any impact on interested 

parties. 

We did not receive public comments 

on this Regulatory Impact Analysis 

provision, and therefore, we are 

finalizing as proposed. 

h. Define Vaccine for Purposes of the 

MDRP Only 

We are opting not to finalize the 

proposed definition of vaccine at this 

time. We are continuing to review the 

input provided by commenters on the 

proposed definition, which may be used 

in future rule making on this topic. 

i. Proposal To Establish a 12-Quarter 

Rebate Audit Time Limitation 

We estimated a decrease in burden 

associated with this proposal. After 

contacting several States, we estimated 

that per State, between 10 and 80 

disputes are initiated routinely in a 

quarter on rebate claims greater than 3 

years old, and those disputes on average 

take an Operations Research Analyst 

between 30 minutes and 4 months to 

resolve, depending on the complexity of 

the dispute and how long ago the claim 

was paid. That means at any given time, 

the States, many of which have limited 

staff resources in the pharmacy 

program, are dealing with hundreds of 

manufacturer disputes for rebate claims 

that are more than 3 years old. For our 

best estimate of the quantifiable impact, 

with all 50 States, the District of 

Columbia, and Puerto Rico being 

affected, we estimated it would take 52 

Operations Research Analysts, 15–2031 

(1 for each State) 7 hours to resolve a 

dispute at $91.92/hr (https://

www.bls.gov/oes/current/ 

oes152031.htm) $643.44 ($91.92 × 7) 

(for 45 outstanding disputes [(10 

disputes + 80 disputes)/2] per State for 

claims greater than 3 years old. We, 

therefore, estimated a one-time 

decreased burden reduction of 

$6,022,598.40 (45 disputes × $643.44 hr/ 

dispute × 52 States × 4 quarters (1 year)). 

Manufacturers will only have the ability 

to initiate a dispute on claims for up to 

12 quarters, from the last day of the 

quarter from the date of State invoice 

postmark. 

We did not receive public comments 

relating to regulatory impact on this 

provision, and we are finalizing as 

proposed. 

j. Proposals Related to State Plan 

Requirements, Findings, and 

Assurances 

The clarification is necessary so 

payments to pharmacy providers are 

consistent with efficiency, economy, 

and quality of care, and are sufficient to 

provide access to care and services at 

least equivalent to the care and service 

available to the general population. 

Pharmacists must be accurately 

reimbursed by the State for drug 

ingredient costs and professional 

dispensing services under § 447.518. 

We have not included time and cost 

burdens for individual State dispensing 

fee surveys in this final rule because we 

cannot accurately determine whether a 

State would choose to conduct a Statespecific cost of dispensing survey or use 

another State’s survey. As such, this is 

an unquantifiable cost to States and 

therefore, we have not included an 

estimate. States have several options 

when reviewing and adjusting their 

professional dispensing fee (including 

using a neighboring State’s survey 

results, conducting their own survey, or 

using survey data from a prior survey). 

In the proposed rule, we specified 

that the type of data that States must 

submit to justify their professional 

dispensing fees must be based on actual 

costs of dispensing. 

We received public comments on this 

Regulatory Impact Analysis provision. 

The following is a summary of the 

comments we received and our 

responses. 

Comment: Two commenters disagreed 

with the proposal to require 

professional dispensing fees to be based 

on cost data, as opposed to marketbased research, and claimed that these 

proposals are unnecessary and 

redundant. One commenter was 

concerned that CMS’ proposed 

requirements divert the States’ limited 

resources away from other more 


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38https://www.kff.org/medicaid/issue-brief/costsand-savings-under-Federal-policy-approaches-toaddress-medicaid-prescription-drug-spending/ 

#:∼:text=This%20estimate%20is%20based%20

in,between%20states%20and%20the%20Federal. 

pressing State Medicaid priorities and 

that CMS’ prohibition on the use of 

market-based reviews of PDFs is not 

accompanied by findings that the States’ 

approach is contributing to 

unsustainable dispensing fee 

reimbursement. Another commenter 

stated that imposing stricter standards 

for cost information in this case means 

that dispensing fees are treated 

differently than traditional Medicaid 

services. Conducting surveys or other 

research on cost-based data will be an 

added burden on States, and it may be 

difficult to obtain this information from 

providers as opposed to market-based 

research. 

Response: We understand the 

concerns; however, CMS has no reason 

to believe that the provisions provided 

in this final rule will divert the States’ 

limited resources away from other more 

pressing State Medicaid priorities. 

States are not required to complete their 

own cost of dispensing study. States can 

propose their professional dispensing 

fees based on a neighboring State’s 

survey, or other credible survey data, as 

long as it is adequate and reflects the 

current pharmacy costs of dispensing a 

prescription in their State. 

CMS is also requiring that the 

professional dispensing fee be based on 

pharmacy cost data, and not be based on 

a market-based review, since we believe 

that market-based research is 

insufficient because it does not reflect 

actual costs to pharmacies to dispense 

prescriptions. 

After consideration of public 

comments on this provision, we are 

finalizing as proposed. 

k. Federal Financial Participation: 

Conditions Relating to PhysicianAdministered Drugs 

All States currently have an existing 

process in place to collect and invoice 

for covered outpatient single source and 

the top 20 high volume multiple source 

physician-administered drugs in 

accordance with regulatory language in 

§ 447.520, which may limit the 

additional burden associated with 

collecting and invoicing NDC 

information for all covered outpatient 

single and multiple source PADs. 

It is difficult to quantify a specific 

dollar value for the expected revenue 

increase at this time. PAD utilization 

and costs vary among all State 

programs; however, once implemented, 

and all States are collecting rebates for 

all single and multiple source COD 

PADs, a baseline can be established. All 

States currently have this process well 

established under regulatory language in 

§ 447.520. 

These provisions clarify the existing 

statute to ensure FFP and rebate 

collection for all covered outpatient 

single and multiple source physicianadministered drugs. 

We received public comments on this 

Regulatory Impact Analysis provision. 

The following is a summary of the 

comments we received and our 

responses. 

Comment: Several commenters 

opposed this proposed regulation which 

mandates submission of NDCs for all 

covered outpatient drugs, as it 

considerably intensifies the 

administrative tasks for Medicaid 

providers. It was stated that this 

requirement, previously limited to 

single source PADs and the top 20 

multiple source PADs, could strain the 

already limited resources of 340B 

covered entities. Another commenter 

suggested requiring NDC numbers only 

for medications that cost above a certain 

dollar threshold to reduce 

administrative burden. 

Response: We appreciate the concerns 

expressed by the commenters 

referencing potential administrative 

burden to State providers to submit 

NDC numbers for all single source and 

multiple source drugs. However, since 

most State Medicaid programs currently 

require their providers to submit 

utilization data through use of NDC 

numbers for all CODs that are single 

source or multiple source drugs, we 

anticipate administrative burden to be 

minimal. Additionally, this benefit is 

not quantifiable because PAD utilization 

and costs vary among all State 

programs, but we believe that most if 

not all States are already billing for 

rebates for all PADs. 

After consideration of public 

comments on this Regulatory Impact 

Analysis provision, we are finalizing as 

proposed. 

l. BIN/PCN on Medicaid Managed Care 

Cards 

The cost is limited to the time the 

Medicaid managed care plans need to 

program the new codes onto the cards. 

We did not receive public comments 

on this Regulatory Impact Analysis 

provision regarding the programming 

time it would take for managed care 

plans to assign the newly required BIN 

and PCN combination, and group 

number identifiers onto the enrollee 

identification cards, and therefore, we 

are finalizing as proposed. 

m. Drug Cost Transparency in Medicaid 

Managed Care Contracts 

The costs associated with this change 

is the cost to managed care plans and 

their subcontractors to negotiate and 

revise contracts to ensure administrative 

fees are separately identifiable from 

reimbursement for CODs, dispensing fee 

costs and other patient costs that need 

to be captured as incurred claims under 

§ 483.8(e)(2). As discussed in the section 

III. of the proposed rule, we estimated 

that these requirements would affect 

282 managed care plans and their 

subcontractors (mainly PBMs) in the 

country and 40 States. We estimated it 

would take an Operations Research 

Analyst (Code 15–2031) 25 hours at 

$91.92 per hour, including fringe 

benefits and other indirect costs, to 

renegotiate and revise 282 Medicaid 

managed care contracts to require the 

MCO, PIHP, or PAHP to require its 

subcontractors to separately report 

information on incurred costs (as 

described in § 438.8(e)(2)) and fees paid 

to the subcontractor for administrative 

services. We, therefore, estimated that 

the burden associated with this 

provision will be a one-time cost for 

each managed care plan of $2,298 or 

$648,036 for all managed care plans. 

There are 40 States with Medicaid 

managed care plans; therefore, we 

estimated the State’s Operations 

Research Analyst (Code 15–2031) 25 

hours at $91.92 per hour, including 

fringe benefits and other indirect costs 

to revise State contracts for a one-time 

cost per State of $2,298 or $91,920 for 

all 40 States. 

Federal savings may be captured by 

an estimate associated with a statutory 

change to eliminate PBM spread pricing 

at $929 Million over 10 years.38 A 

March 2020 CBO estimate for the 

Federal proposal to require pass through 

pricing finds the spread pricing 

provision would produce Federal 

savings of $929 million over 10 years, 

which translates to a less than 1 percent 

drop in Federal Medicaid prescription 

drug spending. It is unclear what 

analysis or assumptions went into these 

estimates, but they are highly dependent 

on assumptions or understanding of the 

extent to which spread pricing currently 

exists in Medicaid. 

There is currently no Federal 

prohibition on using spread pricing in 

Medicaid. As noted, we issued guidance 

in 2019 regarding the impact of the lack 

of transparency between costs for 

administrative functions versus actual 

costs for Medicaid-covered benefits on 

the managed care plan’s MLR 

calculation. The 2019 CIB is clear that 

when the subcontractor, in this case the 

PBM, is performing administrative 


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39https://www.macpac.gov/wp-content/uploads/ 

2019/06/Next-Steps-in-Improving-MedicaidPrescription-Drug-Policy.pdf. 

functions such as eligibility and 

coverage verification, claims processing, 

utilization review, or network 

development, the expenditures and 

profits on these functions are a nonclaims administrative expense as 

described in § 438.8(e)(2)(v)(A), and 

should not be counted as an incurred 

claim for the purposes of MLR 

calculations. 

If a subcontractor incorrectly 

categorizes these administrative fees as 

incurred claims under § 438.8(e)(2), it 

increases the MLR numerator. By 

requiring managed care plans to require 

subcontractors to separately report their 

administrative fees (that is, separately 

identified from incurred claims such as 

reimbursement for covered outpatient 

drugs, dispensing fees, and other patient 

services), the managed care plan is 

better able to ensure the accuracy of 

MLR as well as the base data utilized 

when developing capitation rates for 

Medicaid managed care plans, and 

accurately reflects only medical 

expenditures, thus generating savings to 

the Medicaid program. For those States 

that may not already have this 

requirement as part of its contract with 

the managed care plan, this provision 

would be a cost to the State to revise 

managed care plan contracts. It provides 

transparency to the State and the 

managed care plan as to which 

subcontractor costs are incurred claims 

under § 438.8(e)(2) (costs of CODs and 

dispensing fees) versus administrative 

fees. 

We received the following comment 

regarding this Regulatory Impact 

Analysis provision. 

Comment: A commenter specified 

that the proposed rule aiming to 

enhance transparency in PBM reporting 

may unintentionally raise costs for the 

Medicaid program due to PBMs acting 

as middlemen. Moreover, shifting away 

from spread pricing contracts, often 

without added fees, could lead to 

higher-cost fee-based contracts despite 

their increased transparency, ultimately 

imposing a higher cost on payers. 

Response: We do not agree that the 

provision in § 438.3(s)(8) that requires 

the managed care plan to specify in its 

contract with subcontractors that the 

subcontractor is required to report 

separately the amounts related to 

incurred claims and administrative 

costs, fees and expenses of the 

subcontractor will unintentionally raise 

costs for the Medicaid program. We 

believe this information will help to 

inform the State’s decision-making 

relating to the administration of the 

prescription drug benefit. It will also 

help the Medicaid managed care plans 

have more accurate data to calculate 

their MLRs, as well as ensure that States 

can accurately develop capitation rates. 

Finally, it will help States and managed 

care plans ensure that PBMs specifically 

are being appropriately compensated for 

their services by requiring that the 

subcontractors report separately 

incurred claims for CODs and 

administrative fees, costs, and expenses 

in sufficient detail and the level of 

detail must be no less than the reporting 

requirements in § 438.8(k). 

After consideration of public 

comments on this provision, we are 

finalizing § 438.3(s) with some changes 

to the proposed regulatory text. We will 

modify § 438.3(s)(8) by: adding at the 

beginning of paragraph (8) the phrase 

‘‘The MCO, PIHP, or PAHP’’ to conform 

with the other paragraphs in § 438.3(s), 

inserting ‘‘must’’ to replace ‘‘to’’ for 

additional clarity, and inserting ‘‘to the 

MCO, PIHP, or PAHP’’ for clarity on the 

entity that the subcontractor reports the 

required information to. We also are 

adding § 438.3(w) to include an 

applicability date for the requirements 

of paragraphs (s)(7) and (s)(8), which 

will be the first rating period for 

contracts with MCOs, PIHPs, or PAHPs 

beginning on or after 1 year following 

November 19, 2024. 

n. Proposals Related to Amendments 

Made by the American Rescue Act of 

2021—Removal of Manufacturer Rebate 

Cap (100 Percent AMP) 

This provision is a direct result of a 

statutory change to remove the cap on 

Medicaid drug rebates (the maximum 

rebate amount). Medicaid savings would 

be generated by the increased rebates 

due to the removal of the cap on rebates 

with an estimate of an average of $14.21 

billion over 10 years.39 By removing the 

cap on the amount manufacturers would 

be required to pay for Medicaid drug 

rebates, Medicaid rebate revenue would 

increase thus producing savings to the 

Federal government (Table 5 includes 

the savings which are CBO estimates 

from when the statute was amended). 

The costs associated with this 

requirement are to manufacturers. 

Manufacturers would also need to make 

minor changes to their systems to 

address the removal of the cap. As 

stated in the proposed rule, States 

would realize some savings because of 

the increase in rebates; however, it is 

not known if manufacturer drug prices 

to Medicaid would decrease because of 

the removal of the cap as manufacturers 

adjust pricing to reflect the increase in 

Medicaid drug rebates. 

We did not receive public comments 

on the estimates related to this 

Regulatory Impact Analysis provision 

and are finalizing as proposed. 

o. Payment of Claims 

At this time, there is no need to 

determine cost estimates for this item. 

The 2020 final rule revised the 

regulations and captured cost 

estimations and collection of 

information. This revision would add 

omitted statutory language to the 

existing regulation. This change would 

not produce new burden not already 

captured in the final rule 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. 

We received 2 public comments on 

these proposals. The following is a 

summary of the comments we received 

and our responses. 

Comment: A couple of commenters 

stated they were in support of our 

proposal to correct omissions in 

regulatory language to align with 

statutory language, ensuring Medicaid 

remains the payer of last resort while 

also permitting States to pay claims 

sooner than the specified waiting 

periods when doing so is cost-effective 

and necessary to ensure access to care. 

Response: We appreciate the support 

for this proposal. 

After consideration of public 

comments, we are finalizing this 

provision as proposed. 

p. Requests for Information on 

Requiring a Diagnosis on Medicaid 

Prescriptions 

This provision was a request for 

information only. We sought comments 

on how to negate any foreseeable impact 

on beneficiaries and providers and steps 

which would be needed by States to 

successfully implement a Medicaid 

requirement for diagnosis on 

prescriptions. 

We received many public comments 

on these proposals. The following is a 

summary of the comments we received 

and our response. 

Comment: A few commenters 

provided general support for the 

requirement of diagnoses on 

prescriptions; however, the majority of 

commenters stated their opposition to 

requiring diagnoses on prescriptions. 

These arguments focused mostly on 

administrative burden, potential 


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information technology (IT) issues with 

delays in care, significant system 

alterations, stigma, and other 

complications. Several commenters 

stated that because of the technical and 

operational challenges of including a 

diagnosis on a prescription, it could also 

lead to manufacturers initiating 

unnecessary disputes. Furthermore, 

many commenters opposed the 

requirement of diagnoses on 

prescriptions due to possible impact on 

equitable access to care, including 

delays and denials in care, added 

burden to patients, exacerbation of 

existing barriers to care, and overall 

reduction in care access. 

Response: We appreciate all the 

comments received for the request for 

information on requiring a diagnosis on 

Medicaid prescriptions. 

After careful review and 

consideration of the public comments 

received, and due to the overwhelming 

number of comments that were opposed 

to this requirement, we are not going to 

pursue this requirement in rulemaking 

at this time. We will continue to review 

the feedback we receive from interested 

parties and may address this provision 

in future rulemaking if appropriate. 

q. Proposal To Account for Stacking 

When Determining Best Price 

We are opting not to finalize the 

proposed provision related to stacking 

when determining the best price at this 

time to further consider comments 

received and pursue collection of 

information through a separate 

Paperwork Reduction Act (PRA) request 

to collect additional information related 

to manufacturers’ stacking 

methodologies. 

r. Proposal Regarding Drug Price 

Verification Through Data Collection 

We are opting not to finalize the 

proposed provision related to the drug 

price verification survey at this time. 

s. Proposal To Rescind Revisions Made 

by the December 31, 2020 Final Rule To 

Determination of Best Price (§ 447.505) 

and Determination of Average 

Manufacturer Price (AMP) (§ 447.504) 

Consistent With Court Order 

In the 2020 final rule, CMS revised 

the various patient assistance program 

exclusions from AMP and best price at 

§§ 447.504(c)(25) through (29) and 

(e)(13) through (17) and 447.505(c)(8) 

through (12) to add language that would 

require manufacturers ‘‘to ensure’’ the 

assistance provided by these patient 

assistance programs is passed on to the 

consumer, and the pharmacy, agent, or 

other AMP or best price eligible entity 

does not receive any part of the 

manufacturer patient assistance in the 

form of additional price concessions. 

As part of the 2020 final rule, the 

impact analysis for the exclusions to 

ensure such patient assistance is passed 

on to the patient is discussed at length 

(see 85 FR 87098 through 87100). We 

concluded at that time that based upon 

the studies noted in the analysis, the 

value of patient assistance programs is 

being eroded by PBM copay 

accumulator programs because the 

patient assistance is accumulating to the 

economic benefit of health plans, not to 

patients, given that the health plans’ 

spending on drugs for patients decreases 

as a result of such programs. We also 

believed that, even with the changes in 

the rule, that manufacturers would 

continue to offer patient assistance 

because the infrastructure was there to 

ensure, in accordance with the 

regulation, the patient assistance 

accrued to the patient, rather than the 

plan. Therefore, we believed that 

patients would not be significantly 

impacted by the modifications that the 

manufacturers may have needed to 

make to ensure the pass through of the 

patient assistance to the patient 

consistent with section 1927 of the Act. 

In May 2021, the Pharmaceutical 

Research and Manufacturers of America 

(PhRMA) filed a complaint against the 

Secretary requesting that the court 

vacate these amendments to 

§ 447.505(c)(8) through (11) (85 FR 

87102 and 87103), as set forth in the 

2020 final rule. On May 17, 2022, the 

United States District Court for the 

District of Columbia ruled in favor of 

the plaintiff and ordered that the 

applicable provisions of the 2020 final 

rule be vacated and set aside. 

In response to the order issued by the 

United States District Court for the 

District of Columbia to vacate the 

applicable provisions of the 2020 final 

rule, we proposed to withdraw the 

applicable changes made to § 447.505, 

and, for consistency, withdraw the 

corresponding revisions to regulations 

addressing AMP made by the 2020 final 

rule. At the time of the 2020 final rule, 

we could not quantify to what degree 

the changes would impact 

manufacturers or patients. Therefore, we 

cannot quantify the impact on 

manufacturers and patients because of 

the rescinding of this rule. 

3. Regulatory Review Cost Estimation 

If regulations impose administrative 

costs on private entities, such as the 

time needed to read and interpret the 

proposed rule, we should estimate the 

cost associated with regulatory review. 

Due to the uncertainty involved with 

accurately quantifying the number of 

entities that will be directly impacted 

and will review the proposed rule, we 

assume that the total number of unique 

commenters is based on the current 792 

manufacturers participating in the 

MDRP. Nevertheless, we estimated that 

the current 792 manufacturers would 

need to review the proposed rule. 

Furthermore, we anticipated one 

medical and health service manager 

(Code 11–9111) from each of the 50 

States, the District of Columbia, and 

Puerto Rico that cover prescription 

drugs under the MDRP, will review the 

proposed rule. Additionally, we 

estimated that 19 trade organizations 

may review the proposed rule. The 

estimate of trade organizations is based 

on a previous rule pertaining to the 

MDRP, in which 19 formal comments 

were received from trade organizations. 

It is possible that not all commenters or 

drug manufacturers will review the 

proposed rule in detail, and it is also 

possible that some reviewers will 

choose not to comment on the proposed 

rule. In addition, we assumed that some 

entities will read summaries from trade 

newsletters, trade associations, and 

trade law firms within the normal 

course of keeping up with current news, 

incurring no additional cost. Therefore, 

we assumed that approximately 863 

(792 manufacturers + 52 States + 19 

trade associations) entities may review 

the proposed rule. For these reasons, we 

believed that the number of commenters 

would be a fair estimate of the number 

of reviewers who are directly impacted 

by the proposed rule. We solicited 

comments on this assumption. 

We also recognized that different 

types of entities are in many cases 

affected by mutually exclusive sections 

of the proposed rule. However, for the 

purposes of our estimate, we assumed 

that each reviewer reads 100 percent of 

the proposed rule. 

Using the May 2023 mean (average) 

wage information from the BLS for 

medical and health service managers 

(Code 11–9111), we estimated that the 

cost of reviewing the proposed rule is 

$129.28 per hour, including fringe 

benefits and other indirect costs 

(https://www.bls.gov/oes/current/ 

oes119111.htm). Assuming an average 

reading speed of 250 words per minute, 

we estimated that it would take 

approximately 288 minutes (4.8 hours) 

for the staff to read the rule, which is 

approximately 72,000 words. For each 

medical and health service manager 

(Code 11–9111) that reviews the 

proposed rule, the estimated cost is (4.8 

× $129.28) or $620.54. In part, we 

estimated that the cost of reviewing this 

final rule by medical and health service 

managers is $535,526.02 ($620.54 × 863 


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reviewers). Additionally, there is also a 

lawyer who will review the final rule. 

Using the May 2023 mean (average) 

wage information from the BLS for 

lawyers (Code 23–1011), we estimated 

that the cost of reviewing the final rule 

is $169.68 per hour, including fringe 

benefits and other indirect costs 

(https://www.bls.gov/oes/current/ 

oes231011.htm). Assuming an average 

reading speed of 250 words per minute, 

we estimated that it would take 

approximately 288 minutes (4.8 hours) 

for the staff to review the final rule, 

which is approximately 72,000 words. 

For each lawyer (Code 23–1011) that 

reviews the proposed rule, the estimated 

cost is (4.8 × $169.68) or $814.46. In 

part, we estimated that the cost of 

reviewing the rule by lawyers is 

$702,878.98 ($814.46 × 863 lawyers). In 

total, we estimated the one-time cost of 

reviewing the rule is $1,238,405.00 

($535,526.02 + $702,878.98). 

We acknowledged that these 

assumptions may understate or 

overstate the costs of reviewing the rule. 

We did not receive public comments 

on this Regulatory Impact Analysis 

provision, and therefore, we are 

finalizing as proposed. 

TABLE 4—SUMMARY OF THE ONE-TIME QUANTITATIVE COSTS AND BENEFITS

Line item Cost Entity Timeframe 

Regulatory review ............................................................................................ $1,238,405.00 Manufacturers, States, Trade Association.One-time cost. 

Define manufacturer internal investigation ...................................................... 6,787.20 Manufacturers .................................... One-time cost. 

Establish a 12-Quarter Rebate Audit Time Limitation .................................... (6,022,598.40) States and Federal Government ....... One-time cost savings. 

Drug Cost Transparency in Medicaid Managed Care Contracts .................... 648,036.00 Managed care plans and their subcontractors.One-time cost. 

Drug Cost Transparency in Medicaid Managed Care Contracts .................... 91,920 States ................................................. One-time cost. 

Total ......................................................................................................... (4,037,450.20) 

TABLE 5—SUMMARY OF THE ANNUAL QUANTITATIVE COSTS AND BENEFIT

Line item Cost Entity Timeframe 

Drug cost transparency in Medicaid managed care contracts .......................... ($929,000,000.00) Federal Government ............................ Over 10 years. 

Removal of manufacturer rebate cap (100% of AMP) ...................................... (14,211,000,000.00) Federal and State Governments ......... Over 10 years. 

Total ............................................................................................................ (15,140,000,000.00) 

D. Alternatives Considered 

Some provisions are directly linked to 

statute and therefore alternatives cannot 

be considered. Nevertheless, 

alternatives which we have considered 

are detailed in this section. 

We proposed to modify the definition 

of manufacturer for purposes of 

satisfying the requirement at section 

1927(a)(1) of the Act which requires a 

manufacturer to have entered into and 

have in effect a NDRA. However, based 

on public comment, we are not 

finalizing this proposal at this time. 

We proposed to define vaccine to 

endeavor to prevent disputes with 

manufacturers about what products are 

and are not vaccines for purposes of the 

MDRP, given that there may be products 

coming to market for which this 

definition might help provide clarity. 

However, we are not finalizing this 

proposal at this time. We are continuing 

to review the input provided by 

commenters on the proposed definition, 

which may be used in future rule 

making on this topic. 

We proposed to specify the time 

limitation on manufacturers initiating 

disputes, hearings, or audits with States. 

While the NDRA addresses dispute 

resolution, it provides no guidance on 

whether a timeline applies to the 

initiation of such disputes, hearings, or 

audits. There have been reports from 

States of new disputes being initiated on 

claims dating back several decades to 

paper claims, which is placing 

unnecessary burden on many State 

rebate programs. Implementation of this 

provision is necessary to ensure 

administrative efficiency. An alternative 

considered was to not clarify this 

provision; however, this alternative 

would have allowed disputes to be 

initiated on claims for any time period, 

causing undue strain, work hours, and 

costs on rebate programs, which directly 

counters the purpose of the program to 

offset the Federal and State costs of 

most outpatient prescription drugs 

dispensed to Medicaid patients. 

Additionally, we believe the more 

recent the claim corresponding with the 

dispute, the easier it will be to resolve 

disputes, and this provision will 

improve the accuracy and speed of 

dispute resolutions. 

We did not receive public comment 

on this proposal, which relates to our 

regulatory impact analysis, and we are 

finalizing this provision. 

E. Accounting Statement and Table 

As required by OMB Circular A–4 

(available at https://

www.whitehouse.gov/wp-content/ 

uploads/legacy_drupal_files/omb/ 

circulars/A4/a-4.pdf), we have prepared 

an accounting statement in Table 6 

showing the classification of the impact 

associated with the provisions of this 

final rule. 

TABLE 6—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS/SAVINGS

Category Estimates 

Units 

Year 

dollar 

Discount 

rate 

(%) 

Period 

covered 

Costs/Savings: 

Annualized Monetized ($million/year) ...................................................................... ($0.54) 

(0.46) 

2021 

2021 

7 

3 

2024–2034 

2024–2034 


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TABLE 6—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS/SAVINGS—Continued 

Category Estimates 

Units 

Year 

dollar 

Discount 

rate 

(%) 

Period 

covered 

Costs/Savings: 

Annualized Monetized ($million/year) ...................................................................... (1,328.96) 

(1,433.53) 

2021 

2021 

7 

3 

2024–2034 

2024–2034 

F. Regulatory Flexibility Act (RFA) 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, we 

estimated that almost all Pharmaceutical 

and Medicine manufacturers are small 

entities, as that term is used in the RFA 

(including small businesses, nonprofit 

organizations, and small governmental 

jurisdictions). The great majority of 

hospitals and most other health care 

providers and suppliers are small 

entities, either by being nonprofit 

organizations or by meeting the Small 

Business Administration (SBA) 

definition of a small business (having 

employees of less than 1,250 in any 1 

year) for businesses classified in the 

Pharmaceutical and Medicine 

Manufacturing industries. Note that the 

SBA does not provide any revenue data 

at this time to measure the size of these 

industries. 

According to the SBA’s website at 

https://www.sba.gov/document/supporttable-size-standards, the drug 

manufacturers referred to in the 

proposed rule fall into both NAICS 

325412, Pharmaceutical Preparation 

Manufacturing and NAICS 325414, 

Biologic Product (except Diagnostic) 

Manufacturing. The SBA defines small 

businesses engaged in pharmaceutical 

and medicine manufacturing as 

businesses that have less than 1,250 

employees annually for pharmaceutical 

preparation manufacturing and biologic 

product (except diagnostic) 

manufacturing industries. Table 7 

presents the total number of small 

businesses in each of the two industries 

mentioned. 

TABLE 7—NAICS 32541 PHARMACEUTICAL AND MEDICINE MANUFACTURING SIZE STANDARDS

NAICS 

(6-digit) Industry subsector description 

SBA size standard/ 

small entity threshold 

(employees) 

Total small 

businesses 

325412 .................. Pharmaceutical Preparation Manufacturing ....................................................... 1,250 2,722 

325414 .................. Biologic Product (except Diagnostic) ................................................................. 1,250 587 

Source: 2019 Economic Census. 

TABLE 8—CONCENTRATION RATIOS (NAICS 325412) PHARMACEUTICAL PREPARATION

Firm size 

(by number of employees) Firm count 

Percentage of 

small firms 

(%) 

Total 

employees 

Employee per 

firm to 

total employee 

(%) 

Small Firms .................................................................................................... 2,722 100 93,181 100 

02: <5 employees .......................................................................................... 390 14 633 0.679 

03: 5–9 employees ........................................................................................ 159 6 1,058 1.135 

04:10–14 employees ..................................................................................... 65 2 752 0.807 

05: 15–19 employees .................................................................................... 48 2 766 0.822 

06: <20 employees ........................................................................................ 662 24 3,209 3.444 

07: 20–24 employees .................................................................................... 25 1 535 0.574 

08: 25–29 employees .................................................................................... 25 1 648 0.695 

09: 30–34 employees .................................................................................... 19 1 587 0.630 

10: 35–39 employees .................................................................................... 21 1 700 0.751 

11: 40–49 employees .................................................................................... 30 1 1,329 1.426 

12: 50–74 employees .................................................................................... 45 2 2,600 2.790 

13: 75–99 employees .................................................................................... 31 1 2,439 2.617 

14: 100–149 employees ................................................................................ 49 2 5,292 5.679 

15: 150–199 employees ................................................................................ 27 1 3,793 4.071 

16: 200–299 employees ................................................................................ 42 2 6,853 7.355 

17: 300–399 employees ................................................................................ 22 1 6,204 6.658 

18: 400–499 employees ................................................................................ 13 0 3,907 4.193 

19: <500 employees ...................................................................................... 1,011 37 38,096 40.884 

20: 500–749 employees ................................................................................ 19 1 6,514 6.991 

21: 750–999 employees ................................................................................ 10 0 3,635 3.901 

22: 1,000–1,499 employees .......................................................................... 9 0 3,631 3.897 

Large firms: Employees >1,499 ..................................................................... 68 NA 94,707 NA 

Source: 2019 Economic Census. 


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TABLE 9—CONCENTRATION RATIOS (NAICS 325414) BIOLOGIC PRODUCT (EXCEPT DIAGNOSTIC) MANUFACTURING

Firm size 

(by number of employees) Firm count 

Percentage of 

small firms 

(%) 

Total 

employees 

Employee per 

firm to 

total employee 

(%) 

Small Firms .................................................................................................... 587 100 21,789 100 

02: <5 employees .......................................................................................... 71 12 141 0.65 

03: 5–9 employees ........................................................................................ 42 7 282 1.29 

04:10–14 employees ..................................................................................... 13 2 145 0.67 

05: 15–19 employees .................................................................................... 13 2 224 1.03 

06: <20 employees ........................................................................................ 139 24 792 3.63 

07: 20–24 employees .................................................................................... 12 2 261 1.20 

08: 25–29 employees .................................................................................... 7 1 167 0.77 

09: 30–34 employees .................................................................................... 6 1 184 0.84 

11: 40–49 employees .................................................................................... 6 1 247 1.13 

12: 50–74 employees .................................................................................... 13 2 624 2.86 

13: 75–99 employees .................................................................................... 5 1 384 1.76 

14: 100–149 employees ................................................................................ 8 1 799 3.67 

15: 150–199 employees ................................................................................ 6 1 720 3.30 

16: 200–299 employees ................................................................................ 8 1 1,561 7.16 

18: 400–499 employees ................................................................................ 5 1 1,758 8.07 

19: <500 employees ...................................................................................... 219 37 8,012 36.77 

20: 500–749 employees ................................................................................ 4 1 1,293 5.93 

21: 750–999 employees ................................................................................ 5 1 1,868 8.57 

22: 1,000–1,499 employees .......................................................................... 5 1 2,327 10.68 

Large firms: Employees >1,499 ..................................................................... 41 NA 42,822 NA 

Source: 2019 Economic Census. 

Note, data are not available for businesses with 1,500 to 2,500 employees. 

As can be seen in Tables 8 and 9, the 

economic impacts are disproportionate 

for small firms. Tables 8 and 9 show the 

employees for each of the size categories 

and the employee impact per small 

entity. For example, in Table 8, 390 of 

the smallest firms employ only 0.68 

percent of the employees in its industry; 

while, in Table 9, 71 of the smallest 

firms employ only 0.65 percent of the 

employees in its industry. 

Therefore, as can be seen in Tables 8 

and 9, almost all Pharmaceutical and 

Medicine Manufactures are small 

entities as that term is used in the RFA. 

Additionally, Tables 8 and 9 show the 

disproportionate impacts among firms, 

and between small and large firms. In 

Tables 8 and 9, each industry, 

Pharmaceutical Preparation 

Manufacturing and Biologic Product 

(except Diagnostic) manufacturing (by 

employment), firm count, percentage of 

small firms, total employee and 

percentage of total employee per firm 

size to total employees of the small 

firms were estimated separately to 

determine the Pharmaceutical and 

Medicine manufacturer concentration 

ratios. 

For purposes of the RFA, 

approximately 98 percent of 

Pharmaceutical Preparation 

Manufacturing (2,722/2,790 firms) and 

approximately 93 percent of Biologic 

Product (except Diagnostic) (587/628) 

firms are considered small businesses 

according to the SBA’s size standards 

with 1,250 total employees in any 1 

year. 

At this time, revenue data are not 

currently available. However, 2012 

revenue data from the U.S. Economic 

Census were used to obtain a proxy for 

revenue earned in the Pharmaceutical 

Preparation Manufacturing industry. 

Therefore, as of 2012, the total annual 

receipts for small establishments in the 

Pharmaceutical Preparation 

Manufacturing industry, earning less 

than $45 million accounted for 

approximately 3.1 percent of the 

revenue. Similarly, according to the 

2012 data, total annual receipts for 

small establishments in the Biologic 

Product (except Diagnostic) accounted 

for approximately 3.5 percent of the 

revenue in its industry. 

Individuals and States are not 

included in the definition of a small 

entity. This final rule will not have a 

significant impact (that is, a measured 

change in revenue of 3 to 5 percent) on 

a substantial number of small 

businesses or other small entities. As its 

measure of significant economic impact 

on a substantial number of small 

entities, HHS uses a change in revenue 

of more than 3 to 5 percent. At this time, 

we do not believe that this threshold 

will be reached by the requirements in 

the proposed rule. Therefore, the 

Secretary has certified that the proposed 

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 a regulatory 

impact analysis 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 and has 

fewer than 100 beds. This final rule will 

not have a significant impact on small 

rural hospitals. We did not prepare an 

analysis for section 1102(b) of the Act 

because we have determined, and the 

Secretary has certified, that the final 

rule will not have a significant impact 

on the operations of a substantial 

number of small rural hospitals. 

G. Unfunded Mandates Reform Act 

(UMRA) 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

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 2024, that 

threshold is approximately $183 

million. 

This final rule imposes mandates that 

will result in anticipated costs to State, 

local, and Tribal governments or the 

private sector, but the transfer costs will 

be less than the threshold. States will 

receive additional monetary rebates 


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from manufacturers brought into 

compliance with drug misclassification. 

This final rule will limit the timeframe 

manufacturers have to dispute rebates, 

identify patients to the pharmacist as 

Medicaid beneficiaries, provide 

transparency to the State as to which 

PBM costs are true services costs (costs 

of prescriptions and dispensing fees) 

versus administrative costs, and permit 

States to pay claims sooner than the 

specified waiting period, when doing so 

is cost-effective and necessary to ensure 

access to care. 

As a result, this final rule will not 

impose a mandate that would result in 

the expenditure by State, local, and 

Tribal Governments, in the aggregate, or 

by the private sector, of more than $183 

million in any 1 year. 

H. Federalism 

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 requirement 

costs on State and local governments, 

preempts State law, or otherwise has 

Federalism implications. This final rule 

will not have a substantial direct effect 

on State or local governments, preempt 

States, or otherwise have a Federalism 

implication, therefore the requirements 

of Executive Order 13132 are not 

applicable. 

This final regulation is subject to the 

Congressional Review Act provisions of 

the Small Business Regulatory 

Enforcement Fairness Act of 1996 (5 

U.S.C. 801 et seq.) and has been 

transmitted to the Congress and the 

Comptroller General for review. 

Chiquita Brooks-LaSure, 

Administrator of the Centers for 

Medicare & Medicaid Services, 

approved this document on September 

9, 2024. 

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 

Citizenship and naturalization, Civil 

rights, Grant programs—health, 

Individuals with disabilities, Medicaid, 

Reporting and recordkeeping 

requirements, Sex discrimination. 

42 CFR Part 447 

Accounting, Administrative practice 

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

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV as set forth below: 

PART 433—STATE FISCAL 

ADMINISTRATION 

■ 1. The authority citation for part 433 

continues to read as follows: 

Authority: 42 U.S.C. 1302. 

■ 2. Amend § 433.139 by revising 

paragraphs (b)(3)(i) and (b)(3)(ii)(B) to 

read as follows: 

§ 433.139 Payment of claims. 

* * * * * 

(b) * * * 

(3) * * * 

(i) The claim is for preventive 

pediatric services, including early and 

periodic screening, diagnosis and 

treatment services provided for under 

part 441, subpart B, of this chapter, that 

are covered under the State plan that 

requires a State to make payments 

without regard to third party liability for 

pediatric preventive services except that 

the State may, if the State determines 

doing so is cost-effective and will not 

adversely affect access to care, only 

make such payment if a third party so 

liable has not made payment within 90 

days after the date the provider of such 

services has initially submitted a claim 

to such third party for payment for such 

services; or 

(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 up 

to 100 days after the date of the service 

and provider of such services has 

initially submitted a claim to such third 

party for payment for such services, 

except that the State may make such 

payment within 30 days after such date 

if the State determines doing so is costeffective and necessary to ensure access 

to care. 

* * * * * 

PART 438—MANAGED CARE 

■ 3. The authority citation for part 438 

continues to read as follows: 

Authority: 42 U.S.C. 1302. 

■ 4. Amend § 438.3 by adding 

paragraphs (s)(7) and (8) and (w) to read 

as follows: 

§ 438.3 Standard contract requirements. 

* * * * * 

(s) * * * 

(7) The MCO, PIHP, or PAHP must 

assign and exclusively use unique 

Medicaid-specific Bank Identification 

Number (BIN) and Processor Control 

Number (PCN) combination, and group 

number identifiers for all Medicaid 

managed care enrollee identification 

cards for pharmacy benefits. 

(8) The MCO, PIHP, or PAHP that 

contracts with any subcontractor for the 

delivery or administration of the 

covered outpatient drug benefit must 

require the subcontractor to report 

separately to the MCO, PIHP, or PAHP 

the amounts related to: 

(i) The incurred claims described in 

§ 438.8(e)(2) such as reimbursement for 

the covered outpatient drug, payments 

for other patient services, and the fees 

paid to providers or pharmacies for 

dispensing or administering a covered 

outpatient drug; and 

(ii) Administrative costs, fees and 

expenses of the subcontractor. 

* * * * * 

(w) Applicability date. Paragraphs 

(s)(7) and (8) of this section apply to the 

first rating period for contracts with 

MCOs, PIHPs, and PAHPs beginning on 

or after 1 year following November 19, 

2024. 

* * * * * 

PART 447—PAYMENTS FOR 

SERVICES 

■ 5. The authority citation for part 447 

continues to read as follows: 

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

■ 6. Amend § 447.502 by— 

■ a. In the definition of ‘‘Covered 

outpatient drug’’: 

■ i. In the introductory text, adding 

‘‘(COD)’’ immediately following 

‘‘Covered outpatient drug’’; and 

■ ii. Revising paragraph (2) introductory 

text; 

■ iii. Adding paragraph (4); 

■ b. Adding the definitions of ‘‘Drug 

product information’’, ‘‘Internal 

investigation’’ and ‘‘Market date’’ in 

alphabetical order; and; 

■ c. In the definition of ‘‘Noninnovator 

multiple source drug,’’ revising 

paragraph (3). 

The revisions and additions read as 

follows: 

§ 447.502 Definitions. 

* * * * * 

Covered outpatient drug (COD) * * * 

(2) A covered outpatient drug does 

not include any drug, biological 

product, or insulin provided as part of 

or incident to and in the same setting as 

any of the services in paragraphs (2)(i) 

through (viii) of this definition (and for 

which payment may be made as part of 


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payment for that service and not as 

direct reimbursement for the drug, as 

described in paragraph (4) of this 

definition). 

* * * * * 

(4) Direct reimbursement for a drug 

may include both: 

(i) Reimbursement for a drug alone, or 

(ii) Reimbursement for a drug plus the 

service, in a single inclusive payment if: 

(A) The drug, charge for the drug, and 

number of units of the drug are 

separately identified on the claim, and; 

(B) The inclusive payment includes 

an amount directly attributable to the 

drug, and, 

(C) The amount paid that is 

attributable to the drug is based on a 

reimbursement methodology that is 

included in the applicable section of the 

State plan. 

* * * * * 

Drug product information means 

National Drug Code (NDC), drug name, 

units per package size (UPPS), drug 

category (‘‘S’’, ‘‘I’’, ‘‘N’’), unit type (for 

example, TAB, CAP, ML, EA), drug type 

(prescription, over-the-counter), base 

date AMP, therapeutic equivalent code 

(TEC), line extension indicator, 5i 

indicator, 5i route of administration (if 

applicable), FDA approval date, FDA 

application number or OTC monograph 

citation (if applicable), market date, and 

COD status. 

* * * * * 

Internal investigation means a 

manufacturer’s investigation of its AMP, 

best price, customary prompt pay 

discounts, or nominal prices that have 

been previously certified in the 

Medicaid Drug Rebate Program (MDRP) 

that results in a finding made by the 

manufacturer of possible fraud, abuse, 

or violation of law or regulation. A 

manufacturer must make data available 

to CMS to support its finding. 

* * * * * 

Market date, for the purpose of 

establishing the base date AMP quarter, 

means the date on which the covered 

outpatient drug was first sold by any 

manufacturer. 

* * * * * 

Noninnovator multiple source drug 

* * * 

(3) A covered outpatient drug that 

entered the market before 1962 that is 

not marketed under an NDA; 

* * * * * 

■ 7. Amend § 447.504 by revising 

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

(e)(13) through (17) to read as follows: 

§ 447.504 Determination of average 

manufacturer price. 

* * * * * 

(c) * * * 

(25) Manufacturer coupons to a 

consumer redeemed by the 

manufacturer, agent, pharmacy or 

another entity acting on behalf of the 

manufacturer, but only to the extent that 

the 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 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 full value of the discount 

is passed on to the consumer and the 

pharmacy, agent, or other AMP eligible 

entity does not receive any price 

concession. 

(28) Manufacturer-sponsored patient 

refund/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 AMP eligible entity does 

not receive any price concessions. 

(29) Manufacturer copayment 

assistance programs, to the extent that 

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 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 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 full value of the discount 

is passed on to the consumer and the 

pharmacy, agent, or other AMP eligible 

entity does not receive any price 

concession. 

(16) Manufacturer-sponsored patient 

refund/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 AMP eligible entity does 

not receive any price concessions. 

(17) Manufacturer copayment 

assistance programs, to the extent that 

the program benefits are provided 

entirely to the patient and the 

pharmacy, agent, or other AMP eligible 

entity does not receive any price 

concession. 

* * * * * 

■ 8. Amend § 447.505 by revising 

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

follows: 

§ 447.505 Determination of best price. 

* * * * * 

(c) * * * 

(8) Manufacturer-sponsored drug 

discount card programs, but only to the 

extent 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 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 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 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 

and patient assistance programs, but 

only to the extent that 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. 

* * * * * 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79083 

■ 9. Amend § 447.509 by— 

■ a. Revising paragraphs (a)(5), (a)(6) 

introductory text, (a)(7) introductory 

text, (a)(8) and (9), and (c)(4); and 

■ b. Adding paragraph (d). 

The revisions and addition read as 

follows: 

§ 447.509 Medicaid drug rebates (MDR). 

(a) * * * 

(5) Limit on rebate. For a rebate period 

beginning after December 31, 2009, and 

before January 1, 2024, in no case will 

the total rebate amount exceed 100 

percent of the AMP of the single source 

or innovator multiple source drug. 

(6) Rebate for drugs other than a 

single source drug or innovator multiple 

source drug. The amount of the basic 

rebate for each dosage form and strength 

of a drug other than a single source drug 

or innovator multiple source drug will 

be equal to the product of: 

* * * * * 

(7) Additional rebate for drugs other 

than a single source drug or innovator 

multiple source drug. In addition to the 

basic rebate described in paragraph 

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

form and strength of a drug other than 

a single source drug or innovator 

multiple source drug, the rebate amount 

will be increased by an amount equal to 

the product of the following: 

* * * * * 

(8) Total rebate. The total rebate 

amount for a drug other than a single 

source drug or innovator multiple 

source drug is equal to the basic rebate 

amount plus the additional rebate 

amount, if any. 

(9) Limit on rebate. For a rebate period 

beginning after December 31, 2014, and 

before January 1, 2024, in no case will 

the total rebate amount exceed 100 

percent of the AMP for a drug other than 

a single source drug or innovator 

multiple source drug. 

* * * * * 

(c) * * * 

(4) For a drug other than a single 

source drug or innovator multiple 

source drug, the offset amount is equal 

to 2.0 percent of the AMP (the 

difference between 13.0 percent of AMP 

and 11.0 percent of AMP). 

(d) Manufacturer misclassification of 

a covered outpatient drug and recovery 

of unpaid rebate amounts due to the 

misclassification and other penalties— 

(1) Definition of misclassification. A 

misclassification in the MDRP has 

occurred when a manufacturer has: 

(i) Reported and certified to the 

agency its drug category or drug product 

information related to a covered 

outpatient drug that is not supported by 

the statute and applicable regulations; 

or, 

(ii) Reported and certified to the 

agency its drug category or drug product 

information that is supported by the 

statute and applicable regulations, but 

pays rebates to States at a level other 

than that associated with that 

classification. 

(2) Manufacturer notification by the 

agency of drug misclassification. If the 

agency determines that a 

misclassification has occurred as 

described in paragraph (d)(1) of this 

section, the agency will send written 

and electronic notification of this 

misclassification to the manufacturer of 

the covered outpatient drug, which may 

include a notification that past rebates 

are due. The manufacturer has 30 

calendar days from the date of 

notification to: 

(i) Provide the agency such drug 

product and drug pricing information 

needed to correct the misclassification 

of the covered outpatient drug and 

calculate rebate obligations due, if any, 

pursuant to paragraph (d)(3) of this 

section. The required pricing data 

submitted by the manufacturer to the 

agency shall include the best price 

information for the covered outpatient 

drug, if applicable, for the rebate 

periods for which the manufacturer 

misclassified the covered outpatient 

drug; and, 

(ii) Certify applicable price and drug 

product data after entered into the 

system by the agency. 

(3) Manufacturer payment of unpaid 

rebates due to misclassification 

determined by agency. 

(i) When the agency has determined 

that a manufacturer has misclassified a 

covered outpatient drug as described in 

paragraph (d)(1) of this section, such 

that rebates are owed to the States, and 

notification has been provided to the 

manufacturer as provided under 

paragraph (d)(2) of this section, a 

manufacturer must pay to each State an 

amount equal to the sum of the products 

of: 

(A) The difference between: 

(1) The per URA paid by the 

manufacturer for the covered outpatient 

drug to the State for a period during 

which the drug was misclassified; and 

(2) The per URA that the 

manufacturer would have paid to the 

State for the covered outpatient drug for 

each period, as determined by the 

agency based on the data provided and 

certified by the manufacturer under 

paragraph (d)(2) of this section, if the 

drug had been correctly classified by the 

manufacturer; and, 

(B) The total units of the drug paid for 

under the State plan in each period. 

(ii) Manufacturers must pay such 

rebates to the States for the period or 

periods of time that such covered 

outpatient drug was misclassified, based 

on the formula described in this section, 

within 60 calendar days of notification 

by the agency to the manufacturer of the 

misclassification, and provide 

documentation to the agency that the 

States were contacted by the 

manufacturer, and that such payments 

were made to the States within the 60 

calendar days. 

(4) Agency authority to correct 

misclassifications and additional 

penalties for drug misclassification. The 

agency will review the information 

submitted by the manufacturer based on 

the notice sent under paragraph (d)(2) of 

this section. If a manufacturer fails to 

comply with paragraph (d)(2) of this 

section within 30 calendar days from 

the date of the notification by the 

agency of the misclassification to the 

manufacturer under paragraph (d)(1) of 

this section, fails to pay the rebates that 

are due to the States as a result of the 

misclassification within 60 calendar 

days from the date of the notification, if 

applicable, and/or fails to provide to the 

agency such documentation that such 

rebates have been paid, as described in 

paragraph (d)(3) of this section, the 

agency may do any or all of the 

following: 

(i) Correct the misclassification of the 

drug in the system on behalf of the 

manufacturer, using any pricing and 

drug product information that may have 

been provided by the manufacturer. In 

such case, the manufacturer must certify 

the applicable correction within 30 

calendar days. 

(ii) Suspend the misclassified drug 

and the drug’s status as a covered 

outpatient drug under the 

manufacturer’s rebate agreement from 

the MDRP, and exclude the 

misclassified drug from FFP in 

accordance with section 1903(i)(10)(E) 

of the Act. 

(iii) Impose a civil monetary penalty 

(CMP) for each rebate period during 

which the drug is misclassified, not to 

exceed an amount equal to the product 

of: 

(A) The total number of units of each 

dosage form and strength of such 

misclassified drug paid for under any 

State plan during such a rebate period; 

and 

(B) 23.1 percent of the AMP for the 

dosage form and strength of such 

misclassified drug for that period. 

(iv) Other actions and penalties 

available under section 1927 of the Act 

(or any other provision of law), 

including referral to the HHS Office of 

the Inspector General and termination 

from the MDRP. 


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79084 Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 

40https://www.ecfr.gov/current/title-42/chapterIV/subchapter-C/part-430. 

41 Ibid. 

(5) Transparency of manufacturers’ 

drug misclassifications. The agency will 

make available on a public website an 

annual report as required under section 

1927(c)(4)(C)(ii) of the Act on the 

covered outpatient drug(s) that were 

identified as misclassified during the 

previous year, any steps taken by the 

agency with respect to the manufacturer 

to reclassify the drugs and ensure the 

payment by the manufacturer of unpaid 

rebate amounts resulting from the 

misclassifications, and a disclosure of 

the expenditures from the fund created 

in section 1927(b)(3)(C)(iv) of the Act. 

■ 10. Amend § 447.510 by – 

■ a. Revising the section heading and 

paragraph (b)(1)(v); 

■ b. Adding paragraphs (h) and (i). 

The revisions and additions read as 

follows: 

§ 447.510 Requirement and penalties for 

manufacturers. 

* * * * * 

(b) * * * 

(1) * * * 

(v) The change is to address specific 

rebate adjustments to States by 

manufacturers, as required by CMS or 

court order, or under an internal 

investigation as defined at § 447.502, or 

an Office of Inspector General (OIG) or 

Department of Justice investigation. 

* * * * * 

(h) Suspension of manufacturer’s 

NDRA for late reporting of drug pricing 

and drug product information. 

(1) If a manufacturer fails to timely 

provide information required to be 

reported to the agency under section 

1927(b)(3)(A) of the Act, and paragraphs 

(a) and (d) of this section, the agency 

will provide written notice to the 

manufacturer of failure to provide 

timely information. If such information 

is not reported within 90 calendar days 

of the date of the notice communicated 

to the manufacturer electronically and 

in writing by the agency, such failure by 

the manufacturer to report such 

information in a timely manner shall 

result in suspension of the 

manufacturer’s rebate agreement for all 

covered outpatient drugs furnished after 

the end of the 90-day calendar period. 

The rebate agreement will remain 

suspended until the date the 

information is reported to the agency in 

full and certified, and the agency 

reviews for completeness, but not for a 

period of fewer than 30 calendar days. 

Continued suspension of the rebate 

agreement could result in termination 

for cause. Suspension of a 

manufacturer’s rebate agreement under 

this section applies for Medicaid 

purposes only and does not affect 

manufacturer obligations and 

responsibilities under the 340B Program 

or reimbursement under Medicare Part 

B during the period of the suspension. 

(2) During the period of the 

suspension, the covered outpatient 

drugs of the manufacturer are not 

eligible for FFP. The agency will notify 

the States 30 calendar days before the 

beginning of the suspension period for 

the manufacturer’s rebate agreement and 

any applicable associated labeler rebate 

agreements. 

(i) Manufacturer audits of Stateprovided information. A manufacturer 

may only initiate a dispute, request a 

hearing, or seek an audit of a State 

regarding State drug utilization data, 

during a period not to exceed 12 

quarters from the last day of the quarter 

from the State invoice postmark date. 

■ 11. Amend § 447.518 by adding a 

heading to paragraph (d) and revising 

paragraph (d)(1) to read as follows: 

§ 447.518 State plan requirements, 

findings, and assurances. 

* * * * * 

(d) Data requirements. (1) When 

proposing changes to either the 

ingredient cost reimbursement or 

professional dispensing fee 

reimbursement, States are required to 

evaluate their proposed changes in 

accordance with the requirements of 

this subpart, and States must consider 

both the ingredient cost reimbursement 

and the professional dispensing fee 

reimbursement when proposing such 

changes to ensure that total 

reimbursement to the pharmacy 

provider is in accordance with 

requirements of section 1902(a)(30)(A) 

of the Act. States must provide adequate 

cost-based data, such as a State or 

national survey of retail pharmacy 

providers or other reliable cost-based 

data other than a survey, to support any 

proposed changes to either or both of 

the components of the reimbursement 

methodology. States must submit to 

CMS the proposed change in 

reimbursement and the supporting data 

through a State plan amendment formal 

review process. Research and data must 

be based on pharmacy costs and be 

sufficient to establish the adequacy of 

both current ingredient cost 

reimbursement and professional 

dispensing fee reimbursement. 

Submission by the State of data that are 

not based on pharmacy costs, such as 

market-based research (for example, 

third party payments accepted by 

pharmacies), to support the professional 

dispensing fee would not qualify as 

supporting data. 

* * * * * 

■ 12. Section 447.520 is revised to read 

as follows: 

§ 447.520 Federal Financial Participation 

(FFP): Conditions relating to physicianadministered drugs. 

(a) Availability of FFP. No FFP is 

available for physician-administered 

single source drugs or the multiple 

source drugs identified under paragraph 

(c) of this section that are covered 

outpatient drugs for which a State has 

not required the submission of claims 

using codes that identify the drugs 

sufficiently for the State to invoice a 

manufacturer for rebates in a manner 

consistent with the requirements of this 

section. In the case of multiple source 

drugs not identified under paragraph 

(c), a failure to comply with the 

requirements of this section may result 

in FFP being withheld as provided 

under 42 CFR 430.35.40

(1) Single source drugs. For a covered 

outpatient drug that is a single source, 

physician-administered drug, 

administered on or after January 1, 

2006, a State must require providers to 

submit claims for using National Drug 

Code (NDC) numbers to secure rebates 

and receive FFP. 

(2) Multiple source drugs. For a 

covered outpatient drug that is a 

multiple source, physician-administered 

drug on the list published by CMS 

described in paragraph © of this section, 

administered on or after January 1, 

2008, a State must require providers to 

submit claims using NDC numbers to 

secure rebates and receive FFP. 

(3) States are required to invoice for 

rebates consistent with this section for 

multiple source physician-administered 

drugs that are CODs and that are not on 

the top 20 multiple source physicianadministered drug list published under 

paragraph (c) of this section, or may be 

subject to a withhold of FFP as provided 

under 42 CFR 430.35.41

(b) Required coding. As of January 1, 

2007, a State must require providers to 

submit claims for a covered outpatient 

drug that is described in paragraph 

(a)(1) or (2) of this section that is a 

physician-administered drug using NDC 

numbers. As of November 19, 2024, a 

State must also comply with this 

requirement for a covered outpatient 

drug that is a physician-administered 

drug described in paragraph (a)(3) of 

this section. 

(c) Top 20 multiple source physicianadministered drug list. The top 20 

multiple source physician-administered 

drug list, identified by the Secretary as 


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Federal Register / Vol. 89, No. 187 / Thursday, September 26, 2024 / Rules and Regulations 79085 

having the highest dollar volume of 

physician-administered drugs dispensed 

under the Medicaid program, will be 

published and may be modified from 

year to year to reflect changes in such 

volume. 

(d) Hardship waiver. A State that 

requires additional time to comply with 

the requirements of this section may 

apply to the Secretary for an extension. 

Xavier Becerra, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2024–21254 Filed 9–20–24; 4:15 pm] 

BILLING CODE 4120–01–P 


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