Background

CMS issued the Final Rule in December 2020 to address so-called PBM “accumulator” programs and their potential interface with the MDRP. The Final Rule amended the BP and AMP regulatory exclusions for a manufacturer’s financial assistance program to require that the manufacturer “ensures” that program benefits are provided entirely to the patient as a condition of the respective exclusions applying. Prior to the Final Rule’s publication, commenters raised several concerns with CMS’s proposed rule from both a practical and a legal perspective. CMS disregarded these concerns and proceeded to finalize its proposal but acknowledged that implementing the change warranted a delayed effective date of January 1, 2023.

On May 21, 2021, PhRMA filed a lawsuit challenging the Final Rule on the ground that it violates the Administrative Procedure Act because it conflicts with the text and purpose of the Medicaid rebate statute.

Decision

The court holds that the Final Rule violates the text of the Medicaid rebate statute and is therefore invalid. The Medicaid rebate statute defines BP as the “lowest price available from the manufacturer . . . to any [BP-eligible entity],” which includes wholesalers, retailers, providers, health maintenance organizations, nonprofit entities, and governmental entities, but, notably, does not include patients. The court states that the dispositive question in this case “is whether a manufacturer’s financial assistance to a patient—at least in the context of an accumulator adjustment program—can count as the ‘lowest price available from the manufacturer . . . to any [BP-eligible entity]?’ The answer is no.”

• Manufacturer financial assistance is not a price made available from a manufacturer to a BP-eligible entity. The court holds that manufacturer financial assistance is a price made available from a manufacturer to the patient, and not from the manufacturer to a BP-eligible entity, even where a PBM accumulator program captures some or all of a manufacturer’s financial assistance to a patient. The court rejected the government’s argument that BP “must take account of a price made available from the manufacturer to the commercial health plan through an insured patient,” explaining that the Medicaid rebate statute “does not sanction the last leg of this journey (i.e., through an insured patient).”

• The court otherwise rejected the government’s broad reading of the BP regulation. The court rejected the government’s argument that a discount offered to a BP-ineligible entity (i.e., patient) can count as an indirect discount offered to a BP-eligible entity (i.e., health plan).

• The Final Rule would make it infeasible for manufacturers to comply with the Medicaid rebate statute. The court also noted that it would be infeasible to require manufacturers to calculate BP based on information that is often solely in the possession of health plans. The Final Rule would require manufacturers “to conduct transaction-by-transaction investigations into the operations of accumulator adjustment programs even though manufacturers have no control over (and sometimes no information concerning) those programs.”

The court also rejected the government’s claim that PhRMA lacked standing to challenge the Final Rule, finding that the Final Rule imposed new obligations on manufacturers by requiring them to “ensure” that their assistance is passed on in-full to the patient. The court questioned why CMS would need to delay the effective date of the Final Rule to 2023 if the rule imposed no new obligations.

The court accordingly granted PhRMA’s motion for summary judgment and vacated and set aside the Final Rule.

Next steps

CMS will need to decide in the near term whether it will appeal this decision, and whether to seek to stay the decision pending resolution of an appeal. The Hogan Lovells Government Price Reporting Team will continue to monitor any developments in the litigation and with respect to the Final Rule more generally.

As always, it is important that you carefully review this ruling in light of considerations that may be relevant to your organization and specific drugs.