Medicaid Rebate Update: (1) CMS Delays Expansion of Program to Territories; (2) CMS Issues Revised Medicaid Drug Rebate Agreement, but Will Affordable Care Act Changes to Rebate Program Survive Trump Administration?

By Alan M. Kirschenbaum & David C. Gibbons – 

In separate actions implementing the Medicaid Drug Rebate Program (“MDRP”), CMS has delayed for three years the expansion of the MDRP to U.S. Territories, and issued a draft revised National Drug Rebate Agreement.

Delay in Expansion to U.S. Territories

Today CMS released an interim final rule with comment period that delays for three years the expansion of the MDRP to Puerto Rico and the U.S. Territories (collectively, “Territories”).  This expansion will not only require manufacturers to pay rebates to Territories, but also to include sales to customers located in the Territories in their calculations of average manufacturer price (“AMP”) and best price.  In the Final Rule, the expansion was accomplished by amending the definitions of  “states” and “United States” to include the Territories.  The initial effective date for these amendments was April 1, 2017.  CMS has delayed the effective date until April 1, 2020, in recognition of the complexity of the transition for both the Territories and manufacturers. 

Revised Medicaid Rebate Agreement

CMS is proposing to make substantive revisions to the standard National Drug Rebate Agreement for the first time since the MDRP began and the original agreement was issued in 1991. A draft revised agreement, published in the Federal Register last Wednesday, November 9, would bring the Agreement into alignment with Affordable Care Act amendments to the Medicaid rebate statute and CMS’ implementing final rule issued on February 1, 2016 (“Final Rule”).  (We have summarized the Final Rule here.)  The revised Agreement also contains additional changes incorporating CMS policies adopted over the years.  Comments on the draft revised Agreement are due by February 7, 2017.

Changes consistent with Affordable Care Act amendments and Final Rule: The great majority of revisions align the definitions in the Agreement with the definitions in the Final Rule, codified at 42 C.F.R. §§ 447.502-505.  Definitions of AMP, best price, covered outpatient drug, and many others have been revised to simply refer to the regulatory definitions.  Most of these definitional changes reflect amendments to the statute made by the Affordable Care Act — but not all do.  For example, the definition of “best price”, which is defined in the current Rebate Agreement as the manufacturer’s “lowest price … to any purchaser in the United States,” now is revised consistent with the narrower regulatory definition:  the “lowest price available from the manufacturer … to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity” in the U.S., with certain exclusions.  This definition tracks the statutory definition of best price, which did not change with the Affordable Care Act. See 42 U.S.C. § 1396r-8(c)(1)(C).

Other Revisions: Some of the proposed revisions to the Agreement do not relate to Affordable Care Act amendments, but instead incorporate CMS policy as it has evolved under the MDRP.  For example: 

• The Agreement would now be explicit that a manufacturer must report all of its covered outpatient drugs to CMS, and may not pick and choose which ones to report (Section II(c)).
• Manufacturers “should” ensure that their NDCs are electronically listed with FDA (Section II(c)). In practice, CMS no longer permits drugs to be added to the MDRP unless they are electronically listed with FDA.
• Manufacturers must obtain and maintain access to CMS’ Medicaid Drug Data Reporting (“DDR”) system (Section II(i)).
• A foreign manufacturer must identify a point of contact in the U.S. to communicate with states regarding rebate invoices (Section II(a)).
• Reasonable assumptions must not only be retained in writing, as under the current Agreement, but must be made available to HHS on request (Section II(k)).
• Manufacturers excluded from federal programs will automatically be terminated from the MDRP (Section VII(c)).

To avoid the current situation where the Agreement has become outdated as the statute and regulations have been amended, the draft Agreement provides that it is “subject to any changes in the Medicaid statute or regulations that affect the rebate program.” (Section VIII(a))

We observe that there is some doubt whether this draft Agreement – and, more importantly, the substantial changes to the MDRP enacted in the Affordable Care Act and implemented in the Final Rule – will survive the Trump Administration. President-Elect Trump vowed to seek a full repeal of the Affordable Care Act “on day one” of his presidency, and the Republican-controlled Congress has previously supported a complete repeal, the House having voted in favor of it over 60 times.  However, Mr. Trump suggested in an interview with the Wall Street Journal on Friday that he may not seek a full repeal, in recognition that repealing certain provisions such as the ban on denying coverage based on pre-existing conditions would be unpopular.  A full repeal would also cause 22 million enrollees in exchange plans to lose coverage.  If Mr. Trump and the Congress do not seek a full repeal, it is possible that the MDRP amendments might be spared, since a repeal of those changes, most notably an increase in the base rebate, would be costly to the government.  Moreover, both Mr. Trump and Congressional Republicans have indicated that they favor some actions to restrain drug prices.  Nevertheless, the possibility that the changes to the MDRP made by the Affordable Care Act will be repealed cannot be precluded.  (Note that the expansion of the MDRP to the Territories, discussed above, was not mandated by the Affordable Care Act, and therefore neither the expansion nor the delayed effective date would be affected by a repeal of that law.)