[Federal Register Volume 89, Number 187 (Thursday, September 26, 2024)]
[Rules and Regulations]
[Pages 79020-79085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21254]



[[Page 79019]]

Vol. 89

Thursday,

No. 187

September 26, 2024

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 433, 438, and 447





Medicaid Program; Misclassification of Drugs, Program Administration 
and Program Integrity Updates Under the Medicaid Drug Rebate Program; 
Final Rule

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

[[Page 79020]]


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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.

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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, <a href="/cdn-cgi/l/email-protection#7f10121e0d511e131a12163f1c120c5117170c51181009"><span class="__cf_email__" data-cfemail="187775796a3679747d7571587b756b3670706b367f776e">[email protected]</span></a>, for issues 
related to the definition of covered outpatient drug (COD) and removal 
of manufacturer rebate cap.
    Ruth Blatt, 410-786-1767, <a href="/cdn-cgi/l/email-protection#cdbfb8b9a5e3afa1acb9b98daea0bee3a5a5bee3aaa2bb"><span class="__cf_email__" data-cfemail="f68483829ed8949a978282b6959b85d89e9e85d8919980">[email protected]</span></a>, for issues 
related to the definitions of noninnovator multiple-source drug, market 
date, and COD.
    Ginger Boscas, 410-786-3098, <a href="/cdn-cgi/l/email-protection#03646a6d6466712d616c7060627043606e702d6b6b702d646c75"><span class="__cf_email__" data-cfemail="45222c2b2220376b272a36262436052628366b2d2d366b222a33">[email protected]</span></a>, for issues 
related to third-party liability.
    Michael Forman, 410-786-2666, <a href="/cdn-cgi/l/email-protection#9af7f3f9f2fbfff6b4fcf5e8f7fbf4daf9f7e9b4f2f2e9b4fdf5ec"><span class="__cf_email__" data-cfemail="75181c161d1410195b131a0718141b351618065b1d1d065b121a03">[email protected]</span></a>, for 
issues related to physician-administered drugs.
    Charlotte Hammond, 410-786-1092, <a href="/cdn-cgi/l/email-protection#d2b1bab3a0bebda6a6b7fcbab3bfbfbdbcb692b1bfa1fcbabaa1fcb5bda4"><span class="__cf_email__" data-cfemail="3c5f545d4e505348485912545d51515352587c5f514f1254544f125b534a">[email protected]</span></a>, for 
issues related to diagnosis on prescriptions and professional 
dispensing fees.
    Mickey Morgan, 443-745-3950, <a href="/cdn-cgi/l/email-protection#bdd0d4ded6d8c493d0d2cfdadcd38cfdded0ce93d5d5ce93dad2cb"><span class="__cf_email__" data-cfemail="e4898d878f819dca898b9683858ad5a4878997ca8c8c97ca838b92">[email protected]</span></a>, 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, <a href="/cdn-cgi/l/email-protection#4c20253f2d623f24232f2429380c2f213f6224243f622b233a"><span class="__cf_email__" data-cfemail="54383d27357a273c3b373c3120143739277a3c3c277a333b22">[email protected]</span></a>, for issues 
related to Bank Identification Number and Processor Control Number 
(BIN/PCN).
    Terry Simananda, 410-786-8144, <a href="/cdn-cgi/l/email-protection#483c2d3a3a31663b2125292629262c29082b253b6620203b662f273e"><span class="__cf_email__" data-cfemail="77031205050e59041e1a16191619131637141a04591f1f0459101801">[email protected]</span></a>, for 
issues related to internal investigation, Collection of Information, 
and Regulatory Impact Analysis sections.
    Whitney Swears, 410-786-6543, <a href="/cdn-cgi/l/email-protection#5a2d32332e343f2374292d3f3b28291a39372974323229743d352c"><span class="__cf_email__" data-cfemail="86f1eeeff2e8e3ffa8f5f1e3e7f4f5c6e5ebf5a8eeeef5a8e1e9f0">[email protected]</span></a>, for 
issues related to time limitation on audits and the definition of 
manufacturer.
    Cathy Traugott, 720-853-2785, <a href="/cdn-cgi/l/email-protection#4d2e2c3925283f24232863393f2c382a2239390d2e203e6325253e632a223b"><span class="__cf_email__" data-cfemail="620103160a07100b0c074c16100317050d161622010f114c0a0a114c050d14">[email protected]</span></a>, 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

[[Page 79021]]

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 Sec.  447.502 or any successor 
regulation.
    This narrow exception process in Sec.  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.
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    \1\ https://www.govinfo.gov/content/pkg/FR-2016-02-01/pdf/2016-01274.pdf.
    \2\ https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-098.pdf.
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    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 self-implementing, we proposed a 
series of regulatory amendments at Sec. Sec.  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

[[Page 79022]]

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 physician-administered 
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 Sec.  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 Sec.  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, Sec.  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 Sec.  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 Sec.  447.510(b)(1)(i) through (vi).
    The existing regulation at Sec.  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 Sec.  447.502 and additional clarity around the 12-
quarter price reporting rule at Sec.  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 
Sec.  447.502 for the purpose of the MDRP and are finalizing as 
proposed.
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    \3\ The terms ``base date AMP,'' ``baseline AMP,'' and ``base 
AMP'' are used interchangeably within this document.
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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 
Sec.  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 
Sec.  447.502. Section 1927 of the Act does not define vaccine.

[[Page 79023]]

    We proposed a definition of vaccine at Sec.  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 Sec.  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 Sec.  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 
Sec.  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 Physician-
Administered 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 Sec.  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\
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    \4\ J codes are a subset of the Healthcare Common Procedure 
Coding System (HCPCS) Level II code set used to primarily identify 
injectable drugs.
    \5\ https://www.medicaid.gov/medicaid/prescription-drugs/state-prescription-drug-resources/physician-administered-drugs-pad/index.html.
    \6\ https://www.govinfo.gov/content/pkg/CFR-2007-title42-vol4/pdf/CFR-2007-title42-vol4-sec447-520.pdf.
---------------------------------------------------------------------------

    We proposed to amend Sec.  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.

[[Page 79024]]

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 Sec.  447.510(i) that a 
manufacturer must report information required under Sec.  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 non-Medicaid 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 Sec.  
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 
Sec.  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 Sec.  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 Sec.  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 (Sec.  447.505) and Determination 
of Average Manufacturer Price (AMP) (Sec.  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 Sec.  
447.504(c)(25) through (29) and (e)(13) through (17), and best price at 
Sec.  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

[[Page 79025]]

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 
Sec.  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 Sec.  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
------------------------------------------------------------------------
Sec.   438.3(s)(7)........  First rating period for contracts with MCOs,
                             PIHPs, and PAHPs beginning on or after 1
                             year following November 19, 2024.
Sec.   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 billing radiopharmaceuticals at free-

[[Page 79026]]

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 Sec.  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 
Sec.  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 Sec.  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 Sec.  
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 cost-effective 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 (Sec.  
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 Medicaid-specific 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 
Sec.  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

[[Page 79027]]

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 Sec.  
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 Medicaid-
specific 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 
Medicaid-specific 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\
---------------------------------------------------------------------------

    \7\ https://www.cms.gov/medicare/coverage/prescription-drug-coverage/part-d-information-pharmaceutical-manufacturers.
---------------------------------------------------------------------------

    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

[[Page 79028]]

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 mid-term 
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

[[Page 79029]]

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 Sec.  438.3(s) with some changes to the proposed regulatory 
text. We will modify Sec.  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 Sec.  438.3(s)(7) and establishing 
Sec.  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

[[Page 79030]]

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 (Sec.  
438.4(b)(9)) and (2) are developed using past MLR information for the 
plan (Sec.  438.5(b)(5)). In addition to other standards outlined in 
Sec. Sec.  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 Sec.  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 Sec.  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 
Sec.  438.8 for these categories of costs and expenditures must be 
applied to the required reporting.
    For these reasons, we proposed to amend Sec.  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 Sec.  
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 Sec. Sec.  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

[[Page 79031]]

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, Sec.  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 Sec.  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 non-affiliated 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 Sec.  
438.3(s)(8) to:
    <bullet> 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.
    <bullet> Require that managed care plans' contracts with their 
subcontracted PBMs require reimbursement for all in-network 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.
    <bullet> 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 Sec.  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 Sec.  
447.518, which require State Medicaid FFS payment methodologies for 
retail community pharmacies be in accordance with the definition of 
actual acquisition costs at Sec.  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 Sec.  
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.

[[Page 79032]]

    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 cost-saving incentives in typical PBM 
contracts.
    Response: We appreciate the commenter's support for finalizing 
Sec.  438.3(s)(8). We do not intend to further revise the Federal 
requirements in Sec.  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 Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  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

[[Page 79033]]

CODs are reimbursed as a bundled payment.
    Response: As specified in Sec.  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 Sec.  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 Sec.  
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 Sec.  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 
Sec.  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 Sec.  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 Sec.  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 (Sec.  447.502)
a. Modification to the Definition of Covered Outpatient Drug (Sec.  
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 Sec.  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 Sec.  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 Sec.  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

[[Page 79034]]

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

[[Page 79035]]

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

[[Page 79036]]

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 value-based 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

[[Page 79037]]

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 labor-intensive.
    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 
Sec.  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 Sec. Sec.  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 Sec.  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 Sec.  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 Sec.  447.516.
    After considering the issues raised by the commenters, we have 
decided to finalize this provision with modifications to our proposed

[[Page 79038]]

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 (Sec.  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 Sec.  
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 Sec.  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-approvals-and-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 Sec.  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-rel-113.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 Sec.  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 Sec.  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

[[Page 79039]]

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 open-ended, 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

[[Page 79040]]

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 Sec.  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 ``open-ended'' 
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, FDA-approved 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:

<bullet> Deleting ``. . . includes but is not limited to . . .'' and 
replacing it with ``means''
<bullet> 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 (Sec. Sec.  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, Sec.  
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 Sec.  447.510(b)(1)(i) 
through (vi)). Specifically, we discussed one exception at Sec.  
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 
Sec.  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

[[Page 79041]]

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 
Sec.  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 Sec.  
447.510(b)(1)(v) to reference the definition of internal investigation 
at Sec.  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 Sec.  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 Sec.  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

[[Page 79042]]

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 Sec.  
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 non-compliance 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 Sec.  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 Sec.  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 ``inflation-adjusted 
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 Sec.  447.510(b), and CMS will allow 
manufacturers to revise base date AMP to reflect revisions made to the 
statute's calculation of AMP.

[[Page 79043]]

However, in accordance with the Sec.  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.
---------------------------------------------------------------------------

    \8\ https://www.cms.gov/files/document/medicare-part-d-inflation-rebate-program-revised-guidance.pdf.
    \9\ https://www.federalregister.gov/documents/2024/07/31/2024-14828/medicare-and-medicaid-programs-cy-2025-payment-policies-under-the-physician-fee-schedule-and-other.
---------------------------------------------------------------------------

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

    \10\ Manufacturer Release #80: (https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-080.pdf).
---------------------------------------------------------------------------

    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 Sec.  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 (Sec.  447.502)
    We proposed to further refine the definition of manufacturer at 
Sec.  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 (Sec.  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

[[Page 79044]]

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 Sec.  447.509(a)(2) and (7).\11\
---------------------------------------------------------------------------

    \11\ Section 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).
---------------------------------------------------------------------------

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

    \12\ Base 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.
    \13\ For 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).
---------------------------------------------------------------------------

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

    \14\ The FDA approved application (for example the NDA itself) 
includes all FDA approved supplements to the 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

[[Page 79045]]

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 FDA-approved 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-drug-rebate-program/medicaid-drug-rebate-program-change-request/index.html.

[[Page 79046]]

    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 FDA-approved 
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 (Sec.  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 
Sec.  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 Sec.  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 Sec.  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 (Sec.  
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

[[Page 79047]]

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

    \15\ While 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.
    \16\ Beginning 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.
---------------------------------------------------------------------------

    Specifically, we proposed to define vaccine at Sec.  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 Sec.  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 Sec.  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, antigen-specific 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.
---------------------------------------------------------------------------

    \17\ https://www.fda.gov/vaccines-blood-biologics/vaccines/vaccines-licensed-use-united-states.
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    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--(Sec.  
447.505)

    In the proposed rule, we proposed revisions to the regulations for 
the determination of best price at Sec.  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 Sec.  447.505. Consistent with this 
provision, in 2007, CMS promulgated Sec.  447.505(e)(3) (currently 
Sec.  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\
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    \18\ https://www.govinfo.gov/content/pkg/FR-2023-05-26/pdf/2023-10934.pdf.
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    In the 2016 COD final rule, in response to a comment, CMS further

[[Page 79048]]

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

    \19\ https://www.govinfo.gov/content/pkg/FR-2016-02-01/pdf/2016-01274.pdf.
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    We indicated that we have considered stacking, as stated in the 
preamble to the 2016 COD final rule, as consistent with current Sec.  
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 Sec.  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 Sec.  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.
---------------------------------------------------------------------------

    \20\ https://oig.hhs.gov/documents/evaluation/3188/OEI-12-17-00130-Complete%20Report.pdf.
---------------------------------------------------------------------------

    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 (Sec.  447.505) and Determination 
of Average Manufacturer Price (AMP) (Sec.  447.504) Consistent With 
Court Order

    In the proposed rule, we included a provision that would withdraw 
changes to our regulations found at Sec. Sec.  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 manufacturer-
sponsored 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 Sec.  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: Sec. Sec.  
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

[[Page 79049]]

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: Sec. Sec.  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 
(Sec. Sec.  447.509 and 447.510)

1. Medicaid Drug Rebates (MDR) and Penalties (Sec.  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 per-
unit 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 self-implementing, we proposed a 
series of regulatory amendments at Sec. Sec.  447.509 and 447.510 to 
implement and codify the statutory changes in regulation. In Sec.  
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 (Sec.  447.509(d)(1) Through (4))
    We proposed in new paragraphs (d)(1) through (4) of Sec.  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 Sec.  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.

[[Page 79050]]

    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--Sec.  447.509(d)(1)
    We proposed to define what constitutes a misclassification in 
paragraph (d)(1). As proposed at Sec.  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 Sec.  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

[[Page 79051]]

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--
Sec.  447.509(d)(2)
    We proposed at Sec.  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 Sec.  
447.509(d)(1) and the manufacturer has been notified of the 
misclassification in accordance with the proposed process steps at 
Sec.  447.509(d)(2), we proposed in Sec.  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 
Sec.  447.509(d)(3)(i) a requirement for manufacturers to pay these 
unpaid rebate amounts and proposed to codify at Sec.  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

[[Page 79052]]

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--Sec.  447.509(d)(4)
    We proposed Sec.  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 Sec.  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:
    <bullet> 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;
    <bullet> 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;
    <bullet> 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:
    <bullet> 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
    <bullet> 23.1 percent of the AMP for the dosage form and strength 
of such misclassified drug for that period.
    We also proposed at Sec.  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

[[Page 79053]]

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 Sec.  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 Sec.  447.509(d)(4). Given the 
comments and concerns raised, we are amending the regulatory text in 
Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 79054]]

10 years if they did not retain documents. However, if manufacturers do 
not take the actions set forth in Sec.  447.509(d)(2) and/or (3), the 
penalties in Sec.  447.509(d)(4) may be applied.
f. Transparency of Manufacturers' Drug Misclassification--Sec.  
447.509(d)(5)
    We proposed Sec.  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 Sec.  447.509(d) as proposed with the exception of making a 
modification to proposed Sec.  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 (Sec.  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 Sec.  447.510(h)(1) (originally 
Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 79055]]

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-drug-rebate-program/newreinstated-terminated-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 Sec.  
447.509(a)(5) for single source and innovator multiple source drugs, 
effective January 1, 2010. This limit was later extended to apply

[[Page 79056]]

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 Sec.  
447.509(a)(9).
    To align Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 
Sec.  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

[[Page 79057]]

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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 
(Sec.  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/

[[Page 79058]]

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

    \21\ See section V, Dispute Resolution, ``Medicaid Program: 
Announcement of Medicaid Drug Rebate Program National Rebate 
Agreement,'' Final Notice, 83 FR 12770 (Mar. 23, 2018).
    \22\ State Release 177, State Release 181, State Release 56, 
Manufacturer Release 115, Manufacturer Release 105, Manufacturer 
Release 95, and Manufacturer Release 20.
    \23\ https://www.ncpdp.org/NCPDP/media/pdf/WhitePaper/Medicaid-Drug-Rebate-Program-Challenges-Across-the-Industry.pdf?ext=.pdf.
    \24\ Please see State Release 181, https://www.hhs.gov/guidance/sites/default/files/hhs-guidance-documents/state-rel-181_42.pdf.
---------------------------------------------------------------------------

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

    \25\ https://www.ncpdp.org/NCPDP/media/pdf/WhitePaper/Medicaid-Drug-Rebate-Program-Challenges-Across-the-Industry.pdf?ext=.pdf.
---------------------------------------------------------------------------

    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 Sec.  433.32. We reminded 
manufacturers it also mirrors the timeline for reporting revisions to 
monthly AMP at Sec.  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\
---------------------------------------------------------------------------

    \26\ We 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.
---------------------------------------------------------------------------

    Accordingly, we proposed at Sec.  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

[[Page 79059]]

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

    \27\ Please reference Manufacturer Release 89 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/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/mfr-releases/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/mfr-releases/mfr-rel-029.pdf, for our policy on postmark dates.
---------------------------------------------------------------------------

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

    \28\ Please see State Release 166 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-166.pdf, State Release 154 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-154.pdf, and 
Manufacturer Release 80 https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-080.pdf for our 
policy and guidance related to postmark dates.
---------------------------------------------------------------------------

    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.

[[Page 79060]]

    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-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-105.pdf, https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/mfr-releases/mfr-rel-095.pdf and https://www.medicaid.gov/sites/default/files/medicaid-chip-program-information/by-topics/prescription-drugs/downloads/rx-releases/state-releases/state-rel-181.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.
---------------------------------------------------------------------------

    \29\ For 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.
---------------------------------------------------------------------------

    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

[[Page 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 
(Sec.  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 Sec.  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 non-proprietary 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 Sec.  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 Sec.  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.

[[Page 79062]]

K. Proposals Related to State Plan Requirements, Findings, and 
Assurances (Sec.  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 Sec. Sec.  
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.
---------------------------------------------------------------------------

    \30\ AAC is defined at Sec.  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.
---------------------------------------------------------------------------

    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 Sec.  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 Sec.  
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

[[Page 79063]]

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 Sec. Sec.  
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 
market-based 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 market-based review. We 
believe that market-based 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 well-designed 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 
Sec. Sec.  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 
Physician-Administered Drugs (Sec.  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\
---------------------------------------------------------------------------

    \31\ HCPCS 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 physician- administered 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.
---------------------------------------------------------------------------

    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

[[Page 79064]]

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 Sec.  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 Sec.  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 Sec.  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 Sec.  
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 Sec.  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 Sec.  447.520 to more specifically and 
accurately conform with the statutory requirements captured at section 
1927(a)(7) of the Act. Specifically, in proposed Sec.  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 Sec.  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 Sec.  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 
Sec.  438.3(s)(2) and (3), which were adopted in the 2016 Medicaid 
Managed Care final rule.\33\ Additionally, we proposed at Sec.  
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.
---------------------------------------------------------------------------

    \33\ 86 FR 27498, May 6, 2016 (https://www.govinfo.gov/content/pkg/FR-2016-05-06/pdf/2016-09581.pdf).
---------------------------------------------------------------------------

    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 Sec.  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 Sec.  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 Sec.  
430.435, we have revised the regulation text to provide that compliance 
with requirements in Sec.  447.520 applicable to multiple source PADs 
not on the list of 20 identified under section 1927(b)(i) of the Act 
and Sec.  447.520(c) will be enforced under section 1904 of the Act and 
Sec.  430.435. Finally, because the new requirements that apply to 
multiple source drugs not identified under section 1927(b)(i) of the 
Act and Sec.  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.

[[Page 79065]]

    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 high-dollar 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.
---------------------------------------------------------------------------

    \34\ https://oig.hhs.gov/reports/all/2011/medicare-atypical-antipsychotic-drug-claims-for-elderly-nursing-home-residents/.
    \35\ STAT Op-Ed by Christi A. Grimm & Julie K. Taitsman [verbar] 
Office of Inspector General [verbar] Government Oversight [verbar] 
U.S. Department of Health and Human Services (hhs.gov) https://www.statnews.com/2021/03/01/why-drug-prescriptions-should-include-diagnoses/ March,1 2021.
---------------------------------------------------------------------------

    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

[[Page 79066]]

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, off-label 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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the 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 Physician-Administered 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
----------------------------------------------------------------------------------------------------------------
                                                                                Fringe benefits      Adjusted
               Occupation title                  Occupation     Mean hourly   and other indirect  hourly wage ($/
                                                    code        wage ($/hr)      costs ($/hr)           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 (Sec.  447.509(d)(1) Through (4))
    We added new paragraphs (d)(1) through (4) to Sec.  447.509 to add 
new

[[Page 79067]]

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 Sec.  
447.509(d)(1) through (4) as proposed, with the exception of making a 
modification to Sec.  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 (Sec.  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 Sec.  447.510(h) or our proposal to add a new paragraph 
to Sec.  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'' (Sec.  447.502), (2) proposal to define 
``drug product information'' (Sec.  447.502), (3) proposal to define 
``market date'' (Sec.  447.502), (4) proposal to modify the definition 
of ``noninnovator multiple source drug'' (Sec.  447.502), and (5) 
proposal to clarify Sec.  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 claims-level 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 Sec.  
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, Sec.  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\
---------------------------------------------------------------------------

    \36\ Physician-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, rule-making requirements relating to 
including the NDC on the claim so States could bill for rebates 
(that is, CMS-2345-F, Medicaid Program; Covered Outpatient Drugs).

---------------------------------------------------------------------------

[[Page 79068]]

    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 
(Sec.  447.518)
    The burden for submissions relating to Sec.  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 Sec.  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 well-
designed 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 
Sec. Sec.  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 (Sec.  447.520)
    We are updating Sec.  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 (Sec.  447.510)
    We proposed at Sec.  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 Sec.  
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

[[Page 79069]]

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 
(Sec.  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 Sec.  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 re-issuance 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 Sec.  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 Sec.  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 Sec.  438.3(s)(8). In aggregate, we estimated a one-time 
burden of 1,000 hours (40 State responses x 25 hr/response) at a cost 
of $91,920 (1,000 hr x $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 x 25 hr/response) 
at a cost of $648,036 (7,050 hr x $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 
expenses described in Sec.  438.8(e)(2) from fees paid for 
administrative activities will take approximately 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 x 2 hr/response) at a cost of $51,842.88 (564 hr x $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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Time per
 Regulatory  section(s)  under  OMB Control No. (CMS ID    Number respondents    Total number of    response     Total time    Labor cost    Total cost
     Title  42 of the CFR                 No.)                                      responses         (hr)          (hr)         ($/hr)          ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   438.3(s)(8)............  0938-1445 (CMS-10855)..  40 States.............               40            25         1,000         91.92        91,920
Sec.   438.3(s)(8)............  0938-1445 (CMS-10855)..  282 managed care plans              282            25         7,050         91.92       648,036
Sec.   438.8(s)(8)............  0938-1445 (CMS-10855)..  Subcontractor PBMs of               282             2           564         91.92     51,842.88
                                                          the 282 managed care
                                                          plans.
                                                                                ------------------------------------------------------------------------

[[Page 79070]]

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

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

[[Page 79071]]

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

    \37\ https://www.kff.org/medicaid/issue-brief/costs-and-savings-
under-Federal-policy-approaches-to-address-medicaid-prescription-
drug-spending/
#:~:text=This%20estimate%20is%20based%20in,between%20states%20and%20t
he%20Federal.
---------------------------------------------------------------------------

    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

[[Page 79072]]

do not know how many drugs this provision will affect.
    Finalizing the definition of internal investigation at Sec.  
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 Sec.  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 
Sec.  447.502.
    We proposed to update the definition of manufacturer at Sec.  
447.502 and to add a new paragraph (h) in Sec.  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 Sec.  447.502 and related 
changes in Sec.  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 Sec.  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 Sec.  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 (Sec.  438.4(b)(9)) and (2) are 
developed using past MLR information for the plan (Sec.  438.5(b)(5)). 
In addition to other standards outlined in Sec. Sec.  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

[[Page 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 Sec. Sec.  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.

[[Page 79074]]

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 x 
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 x $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 Sec.  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 Sec.  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 x 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 x $643.44 hr/
dispute x 52 States x 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 Sec.  
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 State-specific 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 
market-based 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

[[Page 79075]]

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 Physician-
Administered 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 Sec.  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 Sec.  447.520.
    These provisions clarify the existing statute to ensure FFP and 
rebate collection for all covered outpatient single and multiple source 
physician-administered 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 Sec.  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 Sec.  
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.
---------------------------------------------------------------------------

    \38\ https://www.kff.org/medicaid/issue-brief/costs-and-savings-
under-Federal-policy-approaches-to-address-medicaid-prescription-
drug-spending/
#:~:text=This%20estimate%20is%20based%20in,between%20states%20and%20t
he%20Federal.
---------------------------------------------------------------------------

    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

[[Page 79076]]

functions such as eligibility and coverage verification, claims 
processing, utilization review, or network development, the 
expenditures and profits on these functions are a non-claims 
administrative expense as described in Sec.  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 Sec.  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 Sec.  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 Sec.  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 
Sec.  438.8(k).
    After consideration of public comments on this provision, we are 
finalizing Sec.  438.3(s) with some changes to the proposed regulatory 
text. We will modify Sec.  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 Sec.  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 Sec.  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.
---------------------------------------------------------------------------

    \39\ https://www.macpac.gov/wp-content/uploads/2019/06/Next-Steps-in-Improving-Medicaid-Prescription-Drug-Policy.pdf.
---------------------------------------------------------------------------

    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

[[Page 79077]]

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 (Sec.  447.505) and Determination 
of Average Manufacturer Price (AMP) (Sec.  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 Sec. Sec.  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 Sec.  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 
Sec.  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 x 
$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 x 863

[[Page 79078]]

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 x $169.68) or $814.46. In part, we estimated that the cost 
of reviewing the rule by lawyers is $702,878.98 ($814.46 x 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,         One-time cost.
                                                       States, Trade
                                                       Association.
Define manufacturer internal                6,787.20  Manufacturers........  One-time cost.
 investigation.
Establish a 12-Quarter Rebate         (6,022,598.40)  States and Federal     One-time cost savings.
 Audit Time Limitation.                                Government.
Drug Cost Transparency in Medicaid        648,036.00  Managed care plans     One-time cost.
 Managed Care Contracts.                               and their
                                                       subcontractors.
Drug Cost Transparency in Medicaid            91,920  States...............  One-time cost.
 Managed Care Contracts.
                                   ------------------
    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        ($929,000,000.00)  Federal Government....  Over 10 years.
 managed care contracts.
Removal of manufacturer rebate cap      (14,211,000,000.00)  Federal and State       Over 10 years.
 (100% of AMP).                                               Governments.
                                     -----------------------
    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
----------------------------------------------------------------------------------------------------------------
                                                                                           Units
                                                                          --------------------------------------
                          Category                             Estimates                  Discount      Period
                                                                           Year dollar    rate (%)     covered
----------------------------------------------------------------------------------------------------------------
Costs/Savings:
    Annualized Monetized ($million/year)....................      ($0.54)         2021            7    2024-2034
                                                                   (0.46)         2021            3    2024-2034

[[Page 79079]]

 
Costs/Savings:
    Annualized Monetized ($million/year)....................   (1,328.96)         2021            7    2024-2034
                                                               (1,433.53)         2021            3    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/support-table-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
----------------------------------------------------------------------------------------------------------------
                                                                          SBA size standard/ small
            NAICS (6-digit)              Industry subsector description       entity threshold       Total small
                                                                                (employees)          businesses
----------------------------------------------------------------------------------------------------------------
325412.................................  Pharmaceutical Preparation                          1,250         2,722
                                          Manufacturing.
325414.................................  Biologic Product (except                            1,250           587
                                          Diagnostic).
----------------------------------------------------------------------------------------------------------------
Source: 2019 Economic Census.


                     Table 8--Concentration Ratios (NAICS 325412) Pharmaceutical Preparation
----------------------------------------------------------------------------------------------------------------
                                                                                                  Employee per
       Firm size (by number of employees)          Firm count   Percentage of        Total        firm to total
                                                               small firms (%)     employees      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.


[[Page 79080]]


         Table 9--Concentration Ratios (NAICS 325414) Biologic Product (Except Diagnostic) Manufacturing
----------------------------------------------------------------------------------------------------------------
                                                                                                  Employee per
       Firm size (by number of employees)          Firm count   Percentage of        Total        firm to total
                                                               small firms (%)     employees      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

[[Page 79081]]

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 
programs-health, 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

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

    Authority:  42 U.S.C. 1302.


0
2. Amend Sec.  433.139 by revising paragraphs (b)(3)(i) and 
(b)(3)(ii)(B) to read as follows:


Sec.  433.139  Payment of claims.

* * * * *
    (b) * * *
    (3) * * *
    (i) The claim is for preventive pediatric services, including early 
and periodic screening, diagnosis and treatment services provided for 
under part 441, subpart B, of this chapter, that are covered under the 
State plan 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 cost-effective and 
necessary to ensure access to care.
* * * * *

PART 438--MANAGED CARE

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

    Authority: 42 U.S.C. 1302.


0
4. Amend Sec.  438.3 by adding paragraphs (s)(7) and (8) and (w) to 
read as follows:


Sec.  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 Sec.  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

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

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


0
6. Amend Sec.  447.502 by--
0
a. In the definition of ``Covered outpatient drug'':
0
i. In the introductory text, adding ``(COD)'' immediately following 
``Covered outpatient drug''; and
0
ii. Revising paragraph (2) introductory text;
0
iii. Adding paragraph (4);
0
b. Adding the definitions of ``Drug product information'', ``Internal 
investigation'' and ``Market date'' in alphabetical order; and;
0
c. In the definition of ``Noninnovator multiple source drug,'' revising 
paragraph (3).
    The revisions and additions read as follows:


Sec.  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

[[Page 79082]]

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;
* * * * *

0
7. Amend Sec.  447.504 by revising paragraphs (c)(25) through (29) and 
(e)(13) through (17) to read as follows:


Sec.  447.504  Determination of average manufacturer price.

* * * * *
    (c) * * *
    (25) Manufacturer coupons to a consumer redeemed by the 
manufacturer, agent, pharmacy or another entity acting on behalf of the 
manufacturer, but only to the extent that the 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.
* * * * *

0
8. Amend Sec.  447.505 by revising paragraphs (c)(8) through (12) to 
read as follows:


Sec.  447.505  Determination of best price.

* * * * *
    (c) * * *
    (8) Manufacturer-sponsored drug discount card programs, but only to 
the extent 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.
* * * * *

[[Page 79083]]


0
9. Amend Sec.  447.509 by--
0
a. Revising paragraphs (a)(5), (a)(6) introductory text, (a)(7) 
introductory text, (a)(8) and (9), and (c)(4); and
0
b. Adding paragraph (d).
    The revisions and addition read as follows:


Sec.  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.

[[Page 79084]]

    (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.

0
10. Amend Sec.  447.510 by -
0
a. Revising the section heading and paragraph (b)(1)(v);
0
b. Adding paragraphs (h) and (i).
    The revisions and additions read as follows:


Sec.  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 Sec.  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 State-provided 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.

0
11. Amend Sec.  447.518 by adding a heading to paragraph (d) and 
revising paragraph (d)(1) to read as follows:


Sec.  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.
* * * * *

0
12. Section 447.520 is revised to read as follows:


Sec.  447.520  Federal Financial Participation (FFP): Conditions 
relating to physician-administered 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\
---------------------------------------------------------------------------

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

    (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 (copyright) 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 physician-administered 
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\
---------------------------------------------------------------------------

    \41\ Ibid.
---------------------------------------------------------------------------

    (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 physician-administered drug list. The 
top 20 multiple source physician-administered drug list, identified by 
the Secretary as

[[Page 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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