CMS Finalizes Medicaid Drug Rebate Changes Addressing PBM Accumulators, VBP Arrangements and Line Extensions

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PBM Accumulator Programs

CMS finalized, without substantive modification, its proposed revisions to the BP and AMP exclusions for manufacturer-sponsored patient assistance programs. These revisions require manufacturers to ensure that the benefits of such programs are provided entirely to patients, if the value of such programs is to be excluded from price reporting. However, CMS delayed the effective date of this change until January 1, 2023, in light of the provision’s potential impact on manufacturer assistance during the COVID-19 pandemic and to give manufacturers time to develop and implement mechanisms necessary to know whether such assistance has been provided entirely to patients.

Despite the premise for the delayed effective date, CMS asserts in the rule that “[m]anufacturers are fully aware of the existence of PBM accumulator programs” and further states that manufacturers “may already be reporting in violation of” the BP and AMP regulations. CMS also states that, “[i]f manufacturers are certifying their AMP and best price data at this time . . . they should be doing so only with the knowledge that . . . their manufacturer-sponsored assistance is being passed through to the patient in compliance with applicable statutes and regulations.” CMS characterizes the final rule as “emphasiz[ing] the need for manufacturers to ensure this is happening.” CMS dismissed comments that the provision may violate the Administrative Procedure Act on various grounds.

CMS states that it expects manufacturers to work with third parties, including patient assistance brokers, switches, health plans, and PBMs, to access the information necessary to comply with the requirement. CMS believes one approach is through an “electronic feedback mechanism at the point-of-sale, which appears to be in place at the present time.” It is unclear what CMS is referencing, and CMS fails to provide any additional detail.

CMS also notes that manufacturers might consider redesigning their programs to require patients to first pay out of pocket for the drug and then collect assistance directly from the manufacturer. According to CMS, this approach would allow patients to consider alternative therapies at the point of sale that are covered by their health plan, which “supports the Administration’s quest for drug pricing transparency.” CMS fails to address the limited financial resources available to many patients, particularly during the pandemic, or the implications for access and continuity of care.

VBP Arrangements

CMS finalized its proposed definition of a VBP arrangement with only minor revisions, as follows:

an arrangement or agreement intended to align pricing and/or payments to an observed or expected therapeutic or clinical value in a select population and includes, but is not limited to: (1) Evidence-based measures, which substantially link the cost of a covered outpatient drug to existing evidence of effectiveness and potential value for specific uses of that product; and/or (2) Outcomes-based measures, which substantially link payment for the covered outpatient drug to that of the drug’s actual performance in patient or a population, or a reduction in other medical expenses.

CMS did not define “substantially” or address whether a specific percentage threshold is necessary. CMS advises manufacturers to make reasonable assumptions and document how their VBP arrangement satisfies the “substantial” element in the definition.

CMS also finalized revisions to the definition of “bundled sale” intended to facilitate certain VBP arrangements. In response to comments, CMS removed the phrase “if the arrangement contains a performance requirement such as an outcome(s) measurement metric.” The final bundled sale definition states that “[v]alue-based purchasing (VBP) arrangements may qualify as a bundled sale.”

Further, CMS finalized, with minor changes, its proposal to revise the definition of BP to permit manufacturers to report multiple BPs in connection with certain VBP arrangements. Specifically, CMS revised the BP definition to state that, “if a manufacturer offers a VBP arrangement . . . to all states, the lowest price available from a manufacturer may include varying best price points for a single dosage form and strength as a result of that [VBP] arrangement.” The change permits manufacturers to report multiple BPs for one or more VBP arrangements in addition to reporting a single BP for a drug not included in a VBP arrangement (a non-VBP arrangement).

To avail themselves of the flexibility to report multiple BPs, manufacturers must make their VBP arrangement(s) available to states on the same terms available in the commercial market. States may choose whether to enter into such VBP arrangements. CMS states that the 340B ceiling price will reflect the BP that manufacturers must continue to report for each dosage form and strength of a drug for non-VBP arrangements.

Last, CMS finalized, without modification, its proposal to allow manufacturers to submit AMP and BP information after the 12-quarter reporting period ends if it is a result of a VBP arrangement and the outcome must be evaluated outside of that period. CMS said that it expects manufacturers to adjust their 340B ceiling prices as they have in the past to reflect any changes to the Medicaid Drug Rebate Program pricing metrics whether within or outside of the 12-quarter period; however, CMS does not address potential practical and operational issues with such adjustments.

To address implementation challenges associated with reporting multiple BPs, CMS delayed the effective date of this change until January 1, 2022, and stated that it intends to issue further guidance.

Line Extensions

CMS also finalized its proposal to define the term “line extension” for “a drug” or “a new formulation of the drug,” but excluding an abuse-deterrent formulation of the drug. CMS also finalized a new regulatory definition for the term “new formulation” but made a number of changes from the proposal in response to comments. These included removing the proposed references to “combination drugs,” “new indication,” and “pharmacodynamics or pharmacokinetics.”

In another significant change, CMS finalized its proposal to require that only the initial single-source drug or the innovator multiple-source drug be an oral solid dosage form in determining whether a drug is a line extension. It defined the term “oral solid dosage form” as “an orally administered dosage form that is not a liquid or gas at the time the drug enters the oral cavity.”

CMS stated that the line extension changes will apply starting on January 1, 2022. Manufacturers should continue to rely on the statutory definition of line extension and any reasonable assumptions to determine whether a drug is a line extension until that date. Importantly, CMS further clarifies that the changes in the final rule “will not be applied retrospectively.”

Authorized Generics

CMS finalized, without substantive modification, its proposal to codify in regulation certain changes regarding the calculation of AMP for covered outpatient drugs for which the manufacturer permits an authorized generic to be sold. The regulations reflect changes enacted as part of the Continuing Appropriations Act, 2020, and Health Extenders Act of 2019, which were previously implemented through subregulatory guidance. The final regulations require a primary manufacturer that sells an authorized generic version of a brand drug to a secondary manufacturer to exclude the price of the transfer sale of the authorized generic from the primary manufacturer’s AMP. CMS also revised the definition of “secondary manufacturer” to clarify that, regardless of the relationship that exists between the primary and secondary manufacturer, “the sales of the authorized generic cannot be blended with the sales of the brand name drug.”