Recent Developments in the Medicaid Drug Rebate Program

June 1, 2021By Faraz Siddiqui & Alan M. Kirschenbaum

The past two weeks have seen two noteworthy developments relating to CMS’s Medicaid Drug Rebate Program (MDRP) regulations.

1.  PhRMA Sues CMS Challenging MDRP Rule Curbing Patient Assistance

In December 2020, CMS published  a final rule making several changes to the MDRP regulations.  See our post here and our summary of the final rule here.   One of these amendments was a poorly thought-out rule that, if implemented, will render virtually unusable the current best price exclusion for manufacturer patient savings programs in the form of coupons, patient rebates/refunds, copay assistance, vouchers, and free drug programs.  The effective date of this amendment is January 1, 2023.

Manufacturers provide patient savings programs at the pharmacy counter to defray the patient’s out-of-pocket costs such as co-pays and deductibles.  Believing that these discount programs incentivize patients and their physicians to favor brand drugs over generics and other less expensive formulary alternatives, pharmacy benefit managers (PBMs) and health plans have implemented “accumulator programs” whereby the PBM or health plan declines to apply manufacturer assistance towards the patient’s deductibles or out-of-pocket maximums. Compl. ¶ 5.  This forces patients ultimately to pay the amounts subsidized by a manufacturer in order to meet their deductibles or maximums. Id.

CMS views accumulator programs as a way for PBMs and insurers to siphon off the benefit of manufacturer assistance so that it does not reach the patients for whom it is intended.  However, rather than directly restricting accumulator programs, CMS has opted to exclude manufacturer assistance from best price only if the manufacturer “ensures” that full value of the assistance is passed on to the consumer, thus imposing on manufacturers the onus of somehow determining whether a particular patient’s insurance plan has an accumulator program and negating it.

On May 21, the Pharmaceutical Research and Manufacturers of America (PhRMA) sued CMS on APA grounds, claiming that this change to the best price rule exceeds CMS’s statutory authority and is contrary to the Medicaid Rebate statute.  According to PhRMA, CMS recognizes that patient savings programs help patients afford necessary medications and stay on them, compl. ¶¶ 37, 41, and that accumulator programs dilute the benefit of such assistance and hurt the patient. Id. ¶ 41. But “rather than proposing solutions to limit the negative impact of accumulator adjustment programs,” CMS is penalizing manufacturers offering assistance to patients “unless the manufacturer somehow ‘ensures’ that the patient’s health plan does not use an accumulator adjustment program.” Id.

The complaint explains that manufacturers will not be able to structure their assistance to patients in a manner that can avoid accumulator programs because they do not know when or which health plan operates an accumulator program and thus “misappropriate[s] the benefit of the assistance from the patient to the plan.” Id. ¶¶ 45, 52.  Accumulator programs are not public knowledge; manufacturers, and even most patients, are unaware of them.  PhRMA argues that manufacturers will either be forced to conduct extensive investigations of health plans or claim adjudications for each patient, somehow gain the cooperation of health plans, or withdraw their assistance programs altogether.  Id. ¶¶ 47, 59.

The penalty for a manufacturer failing to ensure that a patient’s health plan does not use an accumulator program is to include the assistance in the determination of best price, which would almost always increase manufacturer rebates.  PhRMA argues, among other things, that manufacturer assistance cannot be taken into consideration in best price because it is not part of a drug’s price offered to health plans.  The complaint seeks a ruling that the amendment is invalid and an injunction against its implementation.  ¶¶ 49-63.

2.  CMS Proposes to Extend Effective Dates of Two MDRP Regulations

On Friday May 28, CMS proposed to extend the effective date of another best price amendment that appeared in CMS’s December 2020 final rule —  a new provision that permits a manufacturer to report multiple best prices if it offers a value based purchasing (VBP) arrangement to all of the states.  See our summary at 2-4.  That provision was supposed to become effective on January 1, 2022.  CMS now proposes to extend the effective date by six months to July 1, 2022, in order to “provide more time for CMS, states, and manufacturers to implement the new best price and VBP program …,” and also to give CMS more time to complete implementation of its new Medicaid Drug Program system that will replace the current Drug Data Reporting (DDR) system.

In addition, CMS proposes to extend the effective date of a 2016 regulation that requires AMP and Best Price to include sales to purchasers in the U.S. Territories (American Samoa, Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands).  The original effective date of April 1, 2017 has already been delayed twice and is now proposed to be extended an additional two years until April 1, 2024.

Comments on these two proposed extensions are due by June 28, 2021.