CMS Final Rule: What Pharma Manufacturers Need to Know

On September 26, 2024, the Centers for Medicare & Medicaid Services (CMS) published its Final Rule, introducing important changes for pharmaceutical manufacturers participating in the Medicaid Drug Rebate Program (MDRP). These updates go into effect November 19, 2024 to enhance compliance measures, particularly in drug classification and rebate reporting. With processes outlined for stricter oversight, manufacturers need to stay vigilant to avoid non-compliance, which could result in fines, penalties, or exclusion from the program.

This blog outlines the key changes moving forward from the earlier pending rule and highlights elements that are not moving forward for 2024.

» WHAT’S MOVING FORWARD?

1. New / Amended Definitions

What the Rule Outlines:

• Drug Misclassification: CMS has broadened the definition of misclassification to include cases where a manufacturer reports, certifies, or pays rebates based on incorrect drug classifications—specifically, S (Single source), I (Innovator Multiple-source), or N (Non innovator Multiple-source) drugs—that do not align with statutory definitions. Misclassification applies if manufacturers submit drug category data not supported by CMS definitions or fail to update rebate payments according to corrected classifications. Non-compliance risks civil monetary penalties, suspension, or MDRP termination.
•  Market Date: In the CMS final rule update, the “market date” definition has been revised to clarify its role in AMP calculations. CMS now defines market date as “the date on which the covered outpatient drug (COD) was first sold by any manufacturer,” as opposed to previous guidance that referred to the market date more generally as the date when the drug became “available for sale.” This finalized change may impact the Baseline AMP (Average Manufacturer Price) that manufacturers report, affecting both rebate calculations and financial planning for many products within MDRP.
•  Drug Pricing Information: CMS clarifies what manufacturers must report monthly, including NDC, drug name, units per package size, drug category (S, I or N), unit type, drug type (prescription or OTC), baseline AMP, therapeutic equivalent code, line extension indicator, 5i indicator, 5i route of administration (if applicable), FDA approval date, FDA application number or OTC monograph citation (if applicable), market date and COD status.

What It Means for Pharma Manufacturers:

Manufacturers must classify drugs in alignment with FDA approvals (as S, I, or N drugs) to ensure the correct rebate formula is applied and the correct rebate amounts are paid. Misclassification can result in civil monetary penalties, suspension from the MDRP, or termination. Accurate and timely submission of Drug Pricing Information is critical to avoid penalties for non-compliance.

2. Medicaid History Audit Limitation

What the Rule Outlines:

CMS introduces a 12-quarter (3-year) time limit for manufacturers to dispute state invoiced utilization or audit Medicaid rebate data. This restricts manufacturers from challenging or correcting Medicaid rebate invoices beyond three years from the postmark date.

What It Means for Pharma Manufacturers:

Timely auditing of Medicaid rebate invoices is essential. Manufacturers must streamline their processes to ensure discrepancies or over/under payments are corrected within the three-year window. Failure to do so could result in unrecoverable payments or compliance risks.

3. Restatements & Internal Investigations

What the Rule Outlines:

Restatements of AMP or Best Price older than three years require CMS approval. The final rule defines internal investigation as a manufacturer’s review of pricing data for possible fraud, abuse, or regulatory violations. This must result in documented findings justifying the restatement.

What It Means for Pharma Manufacturers:

Manufacturers should proactively monitor pricing submissions to identify and address discrepancies early. Any restatements must be thoroughly documented, with a clear corrective action plan to avoid future issues. Restatements outside of the 36-month window without CMS approval may lead to rejected changes and penalties.

4. Procedure for Suspension of National Drug Rebate Agreements

What the Rule Outlines:

If manufacturers fail to submit pricing data within 30 days of the deadline, CMS may suspend the manufacturer’s rebate agreement. A 90-day extension may be granted, but non-compliance beyond that could result in the suspension of Medicaid rebate eligibility.

What It Means for Pharma Manufacturers:

Manufacturers must submit drug pricing information on time to avoid suspension from the MDRP. Although the agreement remains active for Medicare Part B and 340B Drug Pricing Program purposes, suspension from Medicaid could disrupt profitability and market access.

» WHAT’S NOT MOVING FORWARD?

Several proposed elements from the pending rule published earlier this year are not moving forward in 2024 but may be revisited in the future:

• Required Agreements for Manufacturer & Related Entities: The pending rule sought to require all related entities under a parent manufacturer to hold rebate agreements. This has been paused for further clarification.
• Vaccine Definition: CMS continues to refine the definition of vaccines for the MDRP but has not finalized it. Historically, vaccines have been excluded from the MDRP.
• Best Price Modifications / Stacking: CMS will collect additional information to address how stacking methodologies impact Best Price reporting, delaying finalization of this rule.

SUMMARY & KEY TAKEAWAYS

CMS’s latest Final Rule signals a stronger focus on ensuring compliance in the Medicaid Drug Rebate Program, with stricter rules around drug classification, pricing data submissions, and audit timelines. The rule reinforces CMS’s authority to impose penalties for misclassification and non-compliance, with increased scrutiny expected in 2024 and beyond. Manufacturers must ensure they are well-prepared to comply with these changes to avoid potential penalties or the risk of losing participation in the MDRP.

For expert guidance and support navigating these regulatory updates, contact the experts at Prescription Analytics. Our team helps pharma manufacturers ensure compliance and maintain profitability across government programs in a constantly evolving regulatory landscape.

Source:

Federal Register, vol. 89, no. 187, September 26, 2024, pp. 66047-66132.