Kitchen Sink MDRP Proposed Rule Radically Changes Best Price Determination Resulting in Financial and Operational Challenges for Pharmaceutical Manufacturers

ArentFox Schiff

ArentFox Schiff

On May 26, 2023, the Centers for Medicare & Medicaid Services (CMS) released a Proposed Rule titled: “Medicaid Program: Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program.” While most of the Proposed Rule is fairly routine — conforming regulations based on statutory changes or codifying existing CMS guidance in regulation — buried in text is a proposal that would substantial change how manufacturers determine Best Price.

Specifically, rather than calculating Best Price for single source and innovator multiple source drugs as the lowest price available to one Best Price-eligible entity, the Proposed Rule would require manufacturers to essentially “follow the pill.” This means accumulating or stacking all rebates, discounts, or other price concessions to any Best Price-eligible entity in the supply chain that were paid on the same covered outpatient drug unit or pill when determining Best Price. This would be a material change as to how Best Price is determined and could have a material financial impact on total Medicaid Drug Rebate Program (MDRP) rebates due on certain single source and innovator multiple source drugs, particularly when coupled with the Average Manufacturer Price (AMP) cap removal on the Unit Rebate Amount (URA), which is effective January 1, 2024, pursuant to the American Rescue Plan of 2021.

In addition to the financial implications of the proposed change to the Best Price determination, current government price reporting systems and applications do not currently track accumulated discounts, rebates, and other price concessions based on unit or pill. Rather, discounts, rebates, and other price concessions are tracked by sale to a specific customer. Consequently, if this proposal is finalized, manufacturers will face serious operational challenges in attempting to comply with the new Best Price determination formula. It is important that manufacturers and stakeholders take the opportunity to comment on this proposal during the open comment period.

Comments on the Proposed Rule due on July 25, 2023.

In addition to the material change to the Best Price determination, the Proposed Rule addresses the following:

New and Revised Definitions

Market Date

Historically the term “market date” was only addressed by CMS in guidance, specifically in the Medicaid Drug Data Reporting System/Medicaid Drug Programs (MDP) systems guides. In the guides, CMS did not define “market date” other than noting it could not precede the US Food and Drug Administration (FDA) approval date and that the market date must be when the product was first marketed by any labeler (i.e. market date follows the original FDA approval). In recent times, CMS had been interpreting “market date” to be the date of first sale rather than just the date of product launch or when the product might first be available for purchase. As such, CMS proposes to define “market date” in the Proposed Rule as “the date of which the covered outpatient drug was first sold by any manufacturer.”

Drug Product Information

Manufacturers that participate in the MDRP must submit not only AMP and Best Price for their products in the MDP system, but certain product master data for each covered outpatient drug in MDP. These data fields were historically addressed in the guides, but not defined in regulation. CMS has proposed defining “drug product information” to include National Drug Code (NDC), drug name, units per package size (UPPS), drug category (“S,” “I,” and “N”), unit type (for example TAB, CAP, ML, EA), drug product type (prescription, over-the-counter), base date AMP, therapeutic equivalent code (TEC), line extension indicator, 5i indicator and route of administration, if applicable, FDA approval date, FDA application number or OTC monograph citation, as applicable, market date, COD status, and any other information deemed necessary by the agency to perform accurate unit rebate amount (URA) calculations.


Historically, vaccines have been statutorily excluded from the definition of covered outpatient drug and, therefore, no MDRP rebates are due on Medicaid beneficiary utilization of vaccines. In the Proposed Rule, CMS is proposing to differentiate preventive from therapeutic vaccines, whereby MDRP rebates could be due and payable on therapeutic vaccines, but not preventative vaccines. CMS has proposed to define “vaccine” for purposes of the MDRP exclusion to be “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.”

Manufacturer: Includes All “Related Entities”

CMS has long asserted in agency guidance that if a manufacturer of a covered outpatient drug participates in the MDRP then “all associated companies of the manufacturer that have covered outpatient drugs must enter into an NDRA in order to comply with the terms of the NDRA, found under section II, Manufacturer’s Responsibilities…subsection (b) of the updated NDRA.” See Manufacturer Release 108 dated March 26, 2018. This assertion is found only in CMS sub-regulatory guidance and does not exist in binding regulations implementing the MDRP or in the MDRP statute. In the Proposed Rule, CMS looks to codify this concept long set forth in guidance in regulation. CMS has proposed a broad definition of “manufacturer” to mean “all associated entities of the manufacturer that sell prescription drugs, including, but not limited to, owned, acquired, affiliates, brother or sister corporations operating subsidiaries, franchises, business segments, par of holding companies, divisions, or entities under common corporate ownership or control, must each maintain an effectuated rebate agreement.”

Restatements Beyond the Three-Year Window

Under the MDRP, manufacturers are required to restate AMP and BP within the 12-quarter/36-month “window.” Restatements older than this timeframe are subject to CMS approval. Pursuant to 42 C.F.R. § 447.510(b)(1), CMS will only approve restatements past the 12-quarter window under very specific circumstances including if “(v) [t]he change 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.”

CMS is proposing a regulatory definition of “internal investigation” 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 fraud, abuse, or violation of law or regulation. A manufacturer must make data available to CMS to support its finding.”


Under the MDRP, manufacturers can and do dispute and audit Medicaid claims submitted by the states for MDRP rebates. It is common practice for manufacturers to timely pay routine state MDRP invoices and dispute claims after the fact to avoid interest penalties. Currently, there is no set timeframe in which manufacturers must dispute Medicaid claims. In the Proposed Rule, CMS is proposing to limit the timeframe in which manufacturers can audit state rebate claims to 12 quarters from the last day of the quarter to which the state invoice relates.

Pricing Surveys Related to “High-Cost Drugs”

Under the MDRP statute, CMS “may survey wholesalers and manufacturers that directly distribute their covered outpatient drugs, when necessary, to verify manufacturer prices and manufacturer’s average sales prices (including wholesale acquisition cost)….” See 42 U.S.C. § 1396r-8(3)(B). Historically, CMS has not conducted such surveys, but in the Proposed Rule, CMS has proposed implementing these pricing surveys through regulation. Specifically, CMS has proposed a methodology to identify certain high-cost, covered outpatient drugs and to conduct surveys related to those high-cost drugs. The surveys would aim to obtain information about pricing, distribution, and utilization of such drugs, as well as the costs of production, research and marketing related to such products. CMS also proposes publishing non-proprietary information obtained via the survey process. Entities that do not provide the requested information would be subject to civil monetary penalties.

Suspension of National Drug Rebate Agreement (NDRA) for Late Reporting

Currently, CMS has the authority to collect civil monetary penalties from manufacturers for late monthly and quarterly reporting. The agency can also suspend or even terminate a manufacturer’s NDRA due to untimely reporting pursuant to the MDRP statute. In the Proposed Rule, CMS sets forth a process to suspend a manufacturer’s NDRA due to late reporting. If the manufacturer has not reported and certified monthly and quarterly data within 30 days of the due date, CMS will provide a deadline to comply no more than 90 days thereafter. If the manufacturer does not comply within that 90-day period, the manufacturer’s NDRA will be suspended. Interestingly, CMS states that while the NDRA suspension will temporarily result in the manufacturer’s covered outpatient drugs not being covered under state Medicaid programs, the agency notes that “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 304B Drug Pricing Program.”

Medicaid Managed Care Identifiers, NDCs on Claims for Physician-Administered Drugs and Diagnosis Codes on Medicaid Claims

CMS proposes several changes focused on Medicaid claims from states for MDRP rebates aimed at streamlining the billing, collection, and validation processes. First, in a similar vein to what is required for Medicare Part D plans, CMS is proposing that Medicaid managed care plans use Medicaid-specific BINs and PCNs rather than managed care companies and pharmacy benefit managers using the same BINs and PCNs for Medicaid managed care plans and commercial plans. CMS believes this will aid in better identification of Medicaid claims generally.

Second, CMS is proposing that providers include NDCs on all claims for MDRP rebates for physician-administered drugs submitted to state Medicaid programs. This change will aid the states in billing for MDRP rebates and manufacturers in validating MDRP rebates due on such utilization. Lastly, CMS is proposing that a diagnosis code be included on all Medicaid claims, whether from a pharmacy or for a physician-administered drug, with the hope that the diagnosis code will help states validate that a claim that is reimbursable and that the utilization is eligible for a MDRP rebate. However, obtaining diagnosis codes could be operationally challenging, especially for retail pharmacies, which are not always privy to the diagnosis underlying routine prescriptions.

[View source.]

Written by:

ArentFox Schiff

ArentFox Schiff on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide