On January 1, 2023, a longstanding proposal by the Centers for Medicare & Medicaid Services (CMS) to include U.S. territories (American Samoa, Northern Mariana Islands, Guam, Puerto Rico, and the Virgin Islands) in the regulatory definitions of “States” and “United States” under the Medicaid Drug Rebate Program (MDRP) went into effect after several delays. As a result, drug manufacturers participating in the MDRP are now required to include eligible sales and associated discounts, rebates, and other financial transactions that take place in the U.S. territories in their calculations of average manufacturer price (AMP) and best price (BP).
The MDRP regulatory definitions of “States” and “United States” were originally amended to include the U.S. territories by the Covered Outpatient Drugs Final Rule (dated February 1, 2016), with a delayed inclusion date of April 1, 2017. CMS issued two interim final rules to further delay the implementation date, citing discussions with the territories on preparedness to join the MDRP and concerns related to manufacturers’ potentially increasing drug prices to territorial customers in order to avoid setting lower Medicaid best prices. The January 1, 2023, implementation date was announced as part of CMS’ November 19, 2021, final rule.
Drug manufacturers participating in the MDRP are now required to include eligible sales and associated discounts, rebates, and other financial transactions that take place in the U.S. territories in their calculations of AMP and BP. Some manufacturers have had their systems ready for years to begin accounting for these sales, despite the number of regulatory delays. Others have required additional work to meet this deadline for implementation.
Manufacturers may wish to ensure compliance by assessing the current status of each specific U.S. territory’s participation in the MDRP in order to anticipate the corresponding effect of these developments on pricing and price reporting. To date, the only U.S. territory that has confirmed its intent to participate in the MDRP is Puerto Rico, the largest of the five territories.
As of August 11, 2022, Guam had received approval for a Section 1115 waiver under the Social Security Act, though there is no effective date for the waiver’s implementation on the relevant CMS webpage. On January 9, 2023, the U.S. Virgin Islands announced its intent to request a waiver from participation under Section 1115. As of January 25, 2023, there are no waivers operational in either the Northern Mariana Islands or American Samoa, nor do these territories appear to have waiver applications pending with CMS.
Territorial participation in the MDRP can affect Medicaid rebate liability and forecasting for such liability. Manufacturers should continue to monitor the status of each U.S. territory’s participation in the coming months. Importantly, eligible transactions in the territories must now be included in AMP and BP regardless of whether the territory participates in the MDRP.
Impact on Average Sales Price
Manufacturers with Medicare Part B–reimbursed products should also consider the effect of the amended MDRP definitions on their calculation of average sales price (ASP). In the February 1, 2016 Covered Outpatient Drugs Final Rule, CMS stated that while “changes to how manufacturers calculate AMP could have potential implications for ASP and Medicare payment,” it “believe[s] given the small [anticipated] percentage of sales in the territories to total sales throughout the United States, the impact on manufacturer’s AMP and ASP will be minimal.” CMS, Medicaid Program; Covered Outpatient Drugs Final Rule, 81 Fed. Reg. 5170, 5225 (Feb. 1, 2016). To date, CMS has not issued formal guidance addressing the U.S. territories in ASP calculations.
To the extent manufacturers’ previous exclusion of sales to U.S. territories from ASP was dependent on the ASP statutory provision that allows for the exclusion of “sales exempt from best price” from such calculations, manufacturers should reevaluate their reasonable assumptions to determine whether updates are needed, given that sales to U.S. territories are no longer excludable from BP.
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