CMS releases final rule for covered outpatient drugs

Ned MilenkovichIn January 2016, the Centers for Medicare & Medicaid Services (CMS) released its Covered Outpatient Drugs final rule, which addresses key areas of Medicaid drug reimbursement and changes made to the Medicaid Drug Rebate Program by the Affordable Care Act.

This rule assists states and the federal government in managing drug costs; establishes the long-term framework for implementation of the Medicaid drug-rebate program; and creates a more fair reimbursement system for Medicaid programs and pharmacies.

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Managing drug costs

The final rule:

• Creates a regulatory definition for Average Manufacturer Price (AMP), which is the Medicaid drug-rebate program’s key metric for determining both manufacturer rebates and pharmacy reimbursement for certain generic drugs that are subject to the Federal Upper Limit (FUL).

• Establishes a definition of AMP for inhalation, infusion, instilled, implanted, or injectable drugs, so states can collect rebates on more expensive infused and injected drugs, which are an increasing expense to the Medicaid program.

• Updates the FUL formula on payment for certain generic drugs, creating an incentive for pharmacies to use generic drugs, since pharmacy costs for these drugs will be regularly updated.

• Implements the Affordable Care Act provision that extended rebates to covered outpatient drugs provided to beneficiaries enrolled in Medicaid managed-care organizations.

• Revises the definition of “states” to include U.S. territories (Puerto Rico, Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands) in the rebate program, so that territories can also achieve savings in their drug expenditures.

Medicaid Drug Rebate Program

The final rule clarifies many of the changes made to the Medicaid Drug Rebate Program by the Affordable Care Act. Specifically, the final rule:

• Clarifies the definition of what is a manufacturer’s “best price” and aligns it, where applicable, with the definition of AMP.

• Clarifies the definitions of other key terms used in the determination of AMP, such as “retail community pharmacy” and “wholesaler,” and establishes regulatory definitions for “pediatric indication” and “clotting factor.”

Pharmacy reimbursement

The final rule ensures that pharmacy reimbursement is aligned with the acquisition cost of drugs and that the states pay an appropriate professional dispensing fee.

To that end, the final rule:

• Creates an exception to the FUL calculation that allows for the use of a higher multiplier than 175% to calculate the FUL, based on acquisition costs for certain multiple-source drugs.

• Establishes actual acquisition cost (AAC) as the basis by which states should determine their ingredient-cost reimbursement, so that payments are based on a more accurate estimate of the prices available in the marketplace, while still ensuring sufficient beneficiary access.

• Implements the use of the term “professional dispensing fee” to ensure that the dispensing fee paid to pharmacies reflect the cost of the pharmacist’s professional services and cost to dispense the drug product to a Medicaid beneficiary.

• Clarifies that states are required to evaluate the sufficiency of both the ingredient-cost reimbursement and the professional dispensing-fee reimbursement when proposing changes to either of these components.

• Requires states to specify in the Medicaid state plan that reimbursement methodology to pharmacies that purchase drugs through the Federal Supply Schedule and the 340B Drug Pricing Program is consistent with overall AAC requirements.

Additional comments

CMS is still considering the comments received on the definition of line-extension drugs and has not finalized that portion of the regulation.

At this time, manufacturers are to rely on the statutory definition of line extension at section 1927(c) (2) (C) of the Act, and where appropriate are permitted to use reasonable assumptions in their determination of whether their drug qualifies as a line-extension drug.