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CMS Proposed Rule to Delay Effective Date of Amended Regulatory Definitions under the Medicaid Drug Rebate Program


On Friday, May 28, 2021 the Centers for Medicare & Medicaid Services (“CMS”) published a Proposed Rule that would delay the effective dates of certain amended regulatory definitions under the Medicaid Drug Rebate Program ("MDRP") from a Final Rule published on December 31, 2020 and an interim final rule with comment period ("IFC") published on November 25, 2019.


Under the MDRP, in exchange for Medicaid's coverage of a manufacturer's drugs, a manufacturer must pay rebates that ensure state Medicaid programs receive the "best price" for drugs. 42 U.S.C. § 1396r-8. The "best price" is the lowest price offered by the manufacturer for a drug to most purchasers, including "any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity," (with certain exceptions). See 42 U.S.C. §1396r-8(c)(1)(C); 42 C.F.R. §447.505. The MDRP imposes drug price reporting obligations on manufacturers pursuant to the "best price" requirement.

On December 31, 2020, CMS issued a Final Rule which modified the MDRP regulations to offer flexibility for states to enter into innovative value-based purchasing ("VBP") arrangements with drug manufacturers for new and innovative therapies in order to align pricing and/or payments with clinical or therapeutic outcomes. The Final Rule allows drug manufacturers to report a range of prices offered through VBP arrangements under the "best price" reporting requirement. Specifically, the Final Rule expands the definition of "best price" to state that a lowest price available from a manufacturer may include varying price points for a single dosage form and strength as a result of a VBP arrangement. Under the Final Rule, the expanded definition of "best price" was set to take effect on January 1, 2022.

In addition to the Final Rule, CMS had previously published an IFC amending the regulatory definitions of "States" and "United States" to include U.S. territories for purposes of the MDRP. The inclusion of U.S. territories was set to take effect in April 1, 2022 under the IFC.

The Proposed Rule

The Proposed Rule proposes to delay effective dates for the new regulatory definitions for "best price," under the Final Rule and "States" and "United States" under the IFC.

The Proposed Rule proposes to delay for 6 months the January 1, 2022 effective date for the new "best price" definition to July 1, 2022, in order to provide more time for CMS, states, and manufacturers to implement the new VBP policy in a manner that assures that patient access and quality of care is protected, especially in light of the ongoing COVID-19 public health emergency. According to the Proposed Rule, CMS expects to issue additional guidance before July 1, 2022 on the VBP program, including specifications related to beneficiary protections.

The Proposed Rule also proposes to delay for 2 years the April 1, 2022 effective date for the inclusion of U.S. territories in the new definitions of "States" and "United States" to April 1, 2024. If the territories are included in the MDRP on April 1, 2022, all manufacturers' sales to the territories and prices paid will be included in manufacturers' drug price reporting, regardless of whether the territories participated in the MDRP, which could result in an increase in Medicaid drug costs for the territories that waive out of participation in the MDRP. CMS believes the delay is warranted because it would allow the territories to focus their resources on their beneficiaries during the COVID-19 public health emergency, rather than on the development of systems required to participate in the MDRP. Alternatively, if public comments indicate that the territories wish to participate in the MDRP sooner than April 1, 2024 (and if territories that wish to waive out of participation have time to do so), CMS proposes delaying the effective date to a date that is earlier than April 1, 2024, but not earlier than January 1, 2023.

Comments on the proposed rule must be submitted to CMS by June 28, 2021.

For more information on how the proposed rule changes may affect your business, please contact your Quarles & Brady attorney or:

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