News & Insights


May 30, 2023

Health Headlines – May 30, 2023

CMS Issues Proposed Rule Regarding the Medicaid Drug Rebate Program – On May 26, 2023, CMS published a proposed rule that would implement new policies under the Medicaid Drug Rebate Program (MDRP) to: (1) address situations in which drug manufacturers incorrectly report or misclassify their drugs in the MDRP; (2) enhance the MDRP integrity; and (3) assure consistency and accuracy of drug information reporting (Proposed Rule). These new policies are related to new legislative requirements under the Medicaid Services Investment and Accountability Act of 2019 (MSIAA). Comments on the Proposed Rule are due by July 25, 2023.

Background Information

Under the MDRP, which is governed by Section 1927 of the Social Security Act, drug manufacturers must agree to pay states rebates to partially offset the federal and state costs of most covered outpatient drugs dispensed to Medicaid beneficiaries in order for payment to be made for such drugs. The MDRP contains requirements for manufacturer rebate agreements, drug pricing submission, and other drug pricing information reporting requirements. Under the Proposed Rule, CMS set forth its plans to implement new statutory authorities included under the MSIAA, including increasing its ability to identify and correct misclassified drug information, enhance MDRP definitions and operations, improve the states’ abilities to manage Medicaid drug spending, and enhance pharmacy benefit operations in Medicaid managed care.

Correcting Misclassified Drug Information

The MDRP requires drug manufacturers to submit pricing information for covered outpatient drugs to CMS on a monthly or quarterly basis. Before the enactment of MSIAA, CMS could only impose penalties on manufacturers that failed to provide timely pricing information or provided false pricing information. However, the Proposed Rule would enhance CMS’s ability to ensure that this information is accurately reported by drug manufacturers. To that end, the Proposed Rule would do the following:

  • Define situations in which CMS considers a drug misclassified for the purposes of the MDRP and other instances where a manufacturer is paying rebates to states that are different from rebates that are supported by the drug data reported to MDRP.
  • Develop a process and timeline under which CMS would notify manufacturers that it determined a misclassification of a covered outpatient drug occurred as well as the process to correct such information.
  • Codify manufacturers’ obligation to pay unpaid rebates to states due to misclassification of covered outpatient drugs.
  • Describe the types of penalties CMS may impose on manufacturers that do not correct the misclassification after notification. These include CMS correcting the misclassification, suspension from the MDRP, exclusion of the drug from Medicaid payment, and imposition of civil monetary penalties.

According to CMS, these changes under the Proposed Rule would enable CMS to better ensure that the information received from drug manufacturers is accurate.

MDRP Definitions and Operations

The Proposed Rule would also enhance definitions and operations under the MDRP to increase efficiency of the program and increase CMS’s authority under the MDRP. For instance, the Proposed Rule would allow CMS to suspend the National Drug Rebate Agreement of a labeler for at least 30 days for late reporting of required drug product and price information. The Proposed Rule would also revise the determination of Medicaid “best price” to specify for manufacturers that cumulative discounts or other arrangements must be aggregated to generate a final price realized by the manufacturer for a particular unit of a covered outpatient drug. In addition, the Proposed Rule would specify that ingredient cost reimbursement and professional dispensing fee reimbursement under fee-for-service Medicaid must be based on pharmacy-established cost data and that market-based research will not qualify as supporting data. The Proposed Rule would also require states to collect national drug code information on all physician-administered drugs and specify that states should be invoicing for rebates for all physician-administered drugs in order to secure manufacturer rebates.

Medicaid Drug Price Verification Survey

The Proposed Rule would provide additional tools to states to enhance their ability to negotiate drug prices with manufactures. To accomplish this, the Proposed Rule sets forth a survey process under which CMS would survey manufacturers for a small number of drugs that participate in the MDRP to verify prices of drugs. The survey would be based on the following three-step process:

  1. Each year, CMS would develop a list of high-priced drugs.
  2. CMS would exclude drugs for which manufacturers have (1) participated in any CMS drug pricing program or initiative under which manufacturers would negotiate a covered outpatient drug’s price directly with CMS or (2) negotiated significant supplemental rebates with at least 50% of the states.
  3. If, after application of the criteria above, more than ten (10) covered outpatient drugs remain on the survey list, CMS would further refine the list of drugs to be surveyed by consulting with states or determining highest Medicaid drug spend.

Once the drugs to be surveyed are identified, the survey would collect information on pricing, charges, production and distribution for the drug, product and clinical information, costs of production, research, and marketing. This survey would be intended to verify that such drugs are consistent with economy, efficiency, and quality of care. The survey would help states more effectively negotiate drug prices with manufacturers.

Changes for Pharmacy Benefit Operations in Medicaid Managed Care

The Proposed Rule also sets forth certain changes related to Medicaid managed care. First, since it is sometimes difficult to determine from a Medicaid managed care beneficiary’s insurance card if they are covered under Medicaid managed care, CMS proposes that Medicaid managed care beneficiaries’ cards include Medicaid-specific information to ensure that the appropriate benefits are delivered to the beneficiary and avoid duplicate discounts under the 340B Drug Discount Program. Additionally, the Proposed Rule would require pharmacy benefit managers, when contracting with Medicaid managed care plans for covered outpatient drugs, to report the cost of such drugs. This would create more transparency in pharmacy benefit manager pricing.

The Proposed Rule is available here.

Reporter, Brittany Bratcher, Austin, +1 512 457 2071,