As was expected by many stakeholders, the Centers for Medicare and Medicaid Services (CMS) will delay the inclusion of certain U.S. territories in the Medicaid Drug Rebate Program (MDRP) due to lack of systems readiness. This is the second delay since the original effective date of the provision that would have resulted in the MDRP covering American Samoa, the Northern Mariana Islands, Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands (the Territories). CMS explains, in an interim final rule with comment period (IFR) published on November 25, 2019, that the majority of Territories are not prepared from a systems standpoint to implement the MDRP by the existing April 1, 2020 effective date. Accordingly, CMS will delay the effective date for two years for all Territories until April 1, 2022. Stakeholders may submit comments to the IFR through January 24, 2020.
The MDRP statute requires manufacturers of covered outpatient drugs to enter into a National Drug Rebate Agreement with the Secretary of the Department of Health and Human Services (HHS) in order for “States” to qualify for federal financial participation. “States,” in turn, must provide Medicaid coverage for participating manufacturers’ covered outpatient drugs. Participating manufacturers must report to HHS the average manufacturer price (AMP) and the best price (BP) for each of its covered outpatient drugs and provide a rebate to each approved State plan for each covered outpatient drug dispensed in that “State” during the specified rebate period. The statutory definitions of AMP and BP specify that the metrics apply only to prices paid for applicable drugs in the “United States.”
On February 1, 2016, CMS first amended the MDRP regulatory definitions of “States” and “United States” to include the Territories beginning April 1, 2017. Months later, CMS postponed the effective date by three years – to April 1, 2020 – after determining the Territories would not be able to develop and implement the necessary system changes in time to participate in the MDRP by April 1, 2017.
Rationale for the Second Delay
In the IFR, CMS explained it has been engaging in readiness conversations with the Territories and found that only one would be prepared to implement the MDRP by April 1, 2020, suggesting a delay would be prudent. Furthermore, CMS reported that Puerto Rico has specifically requested an implementation delay, providing a further basis for CMS to conclude a delay would be necessary.
CMS also explained that it considered whether to delay the effective date on a case-by-case basis for only those Territories that are not prepared to implement the MDRP. However, CMS concluded it would not be able to allow for case-by-case delay without notice-and-comment rulemaking, and that there was insufficient time to complete such a regulatory process ahead of the scheduled April 1, 2020 effective date. As a result, the IFR provides a blanket delay applicable to all Territories until April 1, 2022.
The IFR takes effect January 24, 2020, the same date that comments are due.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. In addition, this information was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any U.S. federal, state or local tax penalties that may be imposed on such person.
Attorney Advertising—Sidley Austin LLP, One South Dearborn, Chicago, IL 60603. +1 312 853 7000. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships, as explained at www.sidley.com/disclaimer.
© Sidley Austin LLP