U.S. Inflation Reduction Act Implementation: Public Opportunities to Comment on New Medicare Inflation Rebates Program

Notably, CMS did not issue the initial guidance through notice and comment rulemaking. Instead, CMS states that it intends to implement most parts of the Inflation Rebate program through program instruction and that the initial guidance is subject to change based on the agency’s further consideration of the relevant issues. CMS’ procedures may implicate the Administrative Procedure Act and add to the potential for IRA-related litigation.

Industry stakeholders and other members of the public have until March 11, 2023, to submit comments on designated topics of the initial guidance. These topics include the following:

• Medicare Part B Inflation Rebates:
  • the process that CMS intends to use to determine the number of rebatable units
  • the process CMS intends to use to identify and remove 340B units
  • the process CMS intends to use to identify and remove units covered as outpatient drugs
  • operational considerations related to the inclusion of units furnished to beneficiaries enrolled in Medicare Advantage plans
  • scenarios where CMS should consider reducing or waiving the rebate in case of a shortage as well as the process for reducing or waiving rebates in such scenarios
  • the process CMS intends to use to allocate financial responsibility for drugs where there is more than one manufacturer
  • the process CMS intends to use to ensure the integrity of the rebate determination process.
• Medicare Part D Inflation Rebates:
  • identifying Part D rebatable drug billing units on the prescription claim and Prescription Drug Event (PDE) files
  • options for identifying 340B units to be excluded form Part D rebatable drug units
  • options to bill manufacturers for Part D inflation rebates when the manufacturer does not have an agreement under the Medicaid Drug Rebate Program or when the Part D rebatable drug is not a covered outpatient drug
  • processes to address reduction or waiver in rebates for drug shortages and severe supply chain disruptions
  • mechanisms to ensure the integrity of the invoicing process
  • a process to impose civil monetary penalties on manufacturers that fail to pay rebates

Key Proposals for Medicare Part B Rebatable Drugs

With respect to Part B Inflation Rebates, CMS faces significant hurdles in accurately calculating Medicare Part B Inflation Rebates, as we previously reported. But the initial guidance provides direction in the determination of Part B rebatable drugs and the identification of several payment calculation benchmarks, among other subjects.

• Identification of Part B Rebatable Drugs: CMS intends to identify Part B rebatable single-source drugs and biologics (including biosimilars) according to their Healthcare Common Procedure Coding System (HCPCS) codes two months before the start of each calendar quarter, starting with the calendar quarter beginning April 1, 2023. Drugs and biological products billed using HCPCS codes that represent “unclassified,” “unspecified,” or “not otherwise classified” products will be excluded from identification as Part B rebatable drugs.
• Financial Responsibility for Inflation Rebates: Where a Part B rebatable drug has more than one manufacturer, CMS states that it intends to require individual manufacturers to pay a portion of the inflation rebate amount in proportion to the amount that their individual products (determined by National Drug Codes (NDC) for each product billed or sold to the Part B rebatable drug’s HCPCS code) constitutes the total sum of all drug products assigned to the Part B rebatable drug’s HCPCS code. However, CMS is soliciting comments on the process of allocating financial responsibility for rebatable drugs with more than one manufacturer. This guidance appears to raise issues under the Administrative Procedure Act.
• Exclusion of 340B Units: Sales of 340B discounted products are excluded from the inflation rebate calculation for Part B rebatable drugs. CMS intends to identify the units to be excluded by removing all units billed under the “JG” or “TB” modifiers. CMS requires, beginning January 1, 2024, all 340B covered entities to include the modifiers “JG” or “TB” on separately payable claim lines for drugs purchased through the 340B program. To identify units to be excluded during CY 2023, CMS intends to remove all units billed under the “JG” or “TB” modifiers as well as all other units billed by critical access hospitals, Maryland waiver hospitals, nonexcepted off-campus provider-based departments, and all units in claims submitted by Medicare suppliers listed by the Health Resources and Services Administration as participating in the 340B Drug Pricing Program. CMS is soliciting comments on its process for identifying and removing 340B units in 2023. Given the significant issue of 340B duplicate discounts, this is an important area for comment.
• Exclusion of Units Subject to Medicaid Rebates: CMS further states that it intends to exclude from the Inflation Rebate calculation units for which states have received separate Medicaid drug rebates for individuals dually eligible for Medicaid and Medicare Part B. CMS will identify such units by reviewing individual beneficiary information (e.g., information that would be available in a beneficiary’s state Medicare Modernization Act File). CMS is soliciting comments on its process for identifying and removing dual eligible units.
• Civil Monetary Penalties: CMS states that it “will establish a process for the Part B Inflation Rebate [civil monetary penalties (“CMPs”)] pursuant to regulations as required by [statute],” but it does not specify an intended timeframe for doing so.

Key Proposals for Medicare Part D Rebatable Drugs

With respect to Part D Inflation Rebates, CMS’ initial guidance reflects the following key proposals, among others:

• Identification of Part D Rebatable Drugs: A Part D rebatable drug is a covered Part D drug or biological that as of the first day of the applicable period is (1) a drug approved under a new drug application under Section 505(c) of the Federal Food, Drug, and Cosmetic Act (FDCA); (2) a drug approved under an abbreviated new drug application (ANDA) under Section 505(j) of the FDCA that meets certain criteria; or (3) a biological licensed under Section 351 of the Public Health Service Act.
• Limitation of Part D Rebatable Drugs Approved Under an ANDA: The IRA limits the scope of Part D rebatable drugs approved under an ANDA such that (1) the reference listed drug is not being marketed; (2) there is no other marketed drug approved under an ANDA that is a therapeutic equivalent; (3) the manufacturer is not a “first applicant” during the “180-day exclusivity period” as defined by the FDCA; and (4) the manufacturer is not a “first approved applicant” for a competitive generic therapy, as defined by the FDCA. CMS states that it intends to use information contained in the Drugs@FDA database, the FDA’s Electronic “Orange Book,” and the FDA NDC directory to determine whether a drug approved under an ANDA qualifies as a Part D rebatable drug.
• Temporary Exclusion of Certain Drugs and Biologicals Not Subject to the MDRP or Covered by the Definition of COD: CMS states that it intends to temporarily exclude the following from the Inflation Rebate Program: (1) the Part D rebatable drugs of a manufacturer that does not have a Medicaid drug rebate agreement in effect under the Medicaid Drug Rebate Program (MDRP) and (2) certain drugs and biologicals that are excluded from the Medicaid definition of “covered outpatient drug” (COD) under Sections 1927(k)(2)(B) and (k)(3) of the Social Security Act, such as vaccines or drugs provided incident to hospital or physicians’ services. However, CMS further states that it intends to evaluate means to assess inflation rebates on such drugs and has sought comments on sources of information that would allow the agency to impose inflation rebates on these drugs.
• Exclusion of 340B Acquired Units From Part D Rebatable Drug Requirements: CMS states that it intends to begin excluding sales of 340B discounted products from the Inflation Rebate calculation for Part D rebatable drugs in January 2026, as directed by the IRA. CMS states that it believes requiring a 340B indicator to be included on the PDE record is the most reliable way to identify drugs that are subject to a 340B discount that were dispensed under Medicare Part D, but the agency also is soliciting comments on alternative and potentially more reliable ways to identify Part D claims filled with 340B units.
• Treatment of Subsequently Approved Drugs: CMS states that it intends to use the market date that manufacturers are required to report under the MDRP to identify the “first marketed” date for drugs first approved or licensed after October 1, 2021. However, CMS acknowledges that this approach may apply a different definition of the “first marketing” date from that which would apply to Part B rebatable drugs.
• Treatment of New Formulations: The IRA requires CMS to establish a formula consistent with the formula used in the MDRP, to calculate the rebate amount and the inflation-adjusted payment amount for a Part D rebatable drug that is a line extension of a Part D rebatable drug that is an oral solid dosage form for an applicable period. CMS states that in so doing, the agency intends to borrow the MDRP regulatory definitions of “line extension” and “new formulation” and use information from the MDRP to identify line extensions based on manufacturer reporting of drugs as line extensions and related pricing and product data in that system. Given the significant issues with the MDRP definition of “line extension” and “new formulation,” this may be an important area for comment.

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Sidley continues to closely monitor the prescription drug provisions of the IRA. Please contact your Sidley attorney or the authors below for more information on the implementation of the legislation.