Analysis Shows Proposed CMS ‘Best Price’ Rule May Increase Rebate Liability, Impacting Medicaid

A proposed rule from Centers for Medicare & Medicaid Services (CMS), “Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program,” has been in the spotlight recently. The proposal gives CMS the authority “to address situations in which manufacturers incorrectly report or misclassify their drugs in the [Medicaid Drug Rebate Program] MDRP.”¹

The Medicaid and CHIP Payment and Access Commission (MACPAC), which analyzes policy and makes recommendations on issues that impact Medicaid, has expressed general support for the new rule’s objective “to ensure that rebates provided under the MDRP are calculated appropriately and collected in a timely manner.” (M. Bellam, R. Duncan, H. L. Allen, et al, MACPAC, written communication, July 20, 2023). MACPAC sees particular value in the proposal’s goal—through the addition of paragraph 447.509(d)—to strengthen the Medicaid Services Investment and Accountability Act of 2019. The new paragraph calls out manufacturers that provide information “not supported by applicable statute or regulation.” For example, if a manufacturer reports that a medication is a non-innovator multiple source drug when, in fact, it is not under the new provision, the manufacturer would be liable to pay penalties, as well as past due rebates.²

MACPAC was more cautious in its analysis of new paragraph 447.510(i), which stipulates that manufacturers who do not provide drug product and pricing information in a timely fashion are subject to suspension of their National Drug Rebate Agreement. After being reported, they must respond within 90 days. Manufacturers who fail to respond will suspend their rebate agreement for at least 30 days.² MACPAC expressed concern that suspension of a manufacturer’s rebate agreement “could have harmful effects on beneficiaries who rely on the drug, particularly if that drug is the primary course of treatment with few therapeutic alternatives.” It prefers financial penalties and suggests resorting to suspension in rare cases (M. Bellam, R. Duncan, H. L. Allen, et al, MACPAC, written communication, July 20, 2023).

Other areas of the rule are also under scrutiny. There is particular focus on a provision within the proposed rule to amend the definition of “best price.” Specifically, CMS proposes to revise paragraph 447.505(d)(3) to stipulate that manufacturers “must adjust the best price for a rebate period if cumulative discounts, rebates, or other arrangements subsequently adjust the prices available, to the extent that such cumulative discounts, rebates, or other arrangements are not excluded from the determination of best price by statute or regulation.” (M. Bellam, R. Duncan, H. L. Allen, et al, MACPAC, written communication, July 20, 2023).

A recent analysis by the health care consultant Avalere found that this so-called stacking policy would increase rebates for certain drugs, with a particular impact on medications used by individuals receiving Medicaid. Moreover, increases would also impact the Medicaid 340B program.³ Using third-party discount data and market expertise, Avalere determined that rebates for single-source antipsychotic, multiple sclerosis, and oncology medications could rise by 17% to 21%. Rebate liability would directly impact Medicaid, representing between 10% and 35% of volume for some drugs in the classes. 340B could account for 10% to 30% of the volume for certain products in the classes.

Avalere added that revising best price determination could cause “changes in contracting arrangements and market strategy across stakeholders.” These include:

• A reevaluation of commercial payer rebates, impacting formulary positioning, patient cost, and access
• Changes in the discount supply chain and channel strategy, impacting stakeholders along the supply chain
• Reduced incentives for innovative contracting arrangements between manufacturers and state Medicaid programs³

Republican members of the Senate Finance Committee stated that the proposed changes impact MDRP “operations in ways that offer no material benefit for patients.” In a letter to CMS administrator Chiquita Brooks-LaSure, members said that the stacking proposal “would create technical complications and risk undercutting the policy’s core objectives by disincentivizing larger price concessions.”⁴

IntegriChain, which specializes in pharmaceutical market access and commercialization, agreed that the fiscal impact on manufacturers would be significant, adding that logistical challenges loom if the rule is implemented. “Current systems are designed to track discounts and rebates by single customer sales transactions, not by ‘following the pill’,” it stated in a blog post. Alignment “will demand considerable operational challenges.”⁵

IntegriChain concluded that if the proposal becomes regulation, drugmakers are likely to take legal action because clarity and alignment of the new rule clashes with established norms. For now, IntegriChain advised manufacturers to diligently record pricing assumptions, taking care to track discounts throughout the supply chain.⁵

References

1. Misclassification of drugs, program administration and program integrity updates under the Medicaid Drug Rebate Program notice for proposed rulemaking. CMS. May 23, 2023. Accessed March 4, 2024. https://www.cms.gov/newsroom/fact-sheets/misclassification-drugs-program-administration-and-program-integrity-updates-under-medicaid-drug
2. Centers for Medicare & Medicaid Services. Medicaid program: Misclassification of drugs, program administration and program integrity updates under the Medicaid Drug Rebate Program. May 26, 2023. Accessed March 4, 2024. https://www.regulations.gov/document/CMS-2023-0092-0001
3. West M, Scott M, Meyerson N, Kruger M, Grady L. Proposed changes to best price could shift market dynamics for stakeholders. Avalere. December 2023. Accessed March 4, 2024. https://avalere.com/wp-content/uploads/2023/12/Proposed-Changes-to-Best-Price-Could-Shift-Market-Dynamics-for-Stakeholders_1.pdf
4. United States Senate Committee on Finance. Rule risks disrupting patient care. November 2, 2023. Accessed March 4, 2024. https://www.finance.senate.gov/ranking-members-news/finance-committee-republicans-new-medicaid-rule-risks-disrupting-patient-care#:~:text=In%20a%20letter%20to%20Administrator,the%20Medicaid%20program%20so%20patients
5. Iaconi N, Hall C, Baab J. Medicaid best price proposed rules, PBMs, opportunities and complexities. IntegriChain. October 20, 2023. Accessed March 4, 2024. https://www.integrichain.com/blog/october-market-update-2/