Fact Sheets

Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements (CMS 2482-F) Final Reg


Today, the Centers for Medicare & Medicaid Services (CMS) published the final rule Establishing Minimum Standards in Medicaid State Drug Utilization Review (DUR) and Supporting Value-Based Purchasing (VBP) for Drugs Covered in Medicaid, Revising Medicaid Drug Rebate and Third Party Liability (TPL) Requirements (CMS 2482-F).

This final rule advances CMS’ efforts to support state flexibility to enter value-based purchasing arrangements (VBPs) with drug manufacturers for innovative, and sometimes costly drugs therapies, and to provide manufacturers with regulatory flexibility to enter into VBPs with commercial payers, which will benefit Medicaid programs. It also creates minimum standards in state Medicaid DUR programs designed to reduce opioid-related fraud, misuse and abuse.

This final rule also revises regulations regarding:  

  • How manufacturers should calculate the average manufacturer price (AMP) of a brand name drug when there is also a sale of an authorized generic;
  • How manufacturers should include the discount or rebates provided as part of their patient assistance programs in the calculation of “best price” and AMP, including when they are impacted by pharmacy benefit managers (PBM) accumulator programs;
  • State and manufacturer reporting requirements to the Medicaid Drug Rebate Program (MDRP);
  • The definition of a CMS-authorized supplemental rebate agreement, to clarify that the rebates under such arrangements for MCO claims must be paid to the state;;
  • The definition of line extension, new formulation, oral solid dosage form, single source drug, multiple source drug, and innovator multiple source drug for purposes of the MDRP; and,
  • Coordination of benefits (COB) and TPL rules related to the special treatment of certain types of care and payment in Medicaid and Children’s Health Insurance Program (CHIP). 

Increases beneficiary access to medications by promoting value-based purchasing

This final rule helps modernize the MDRP law, which was enacted 30 years ago, by revising the AMP and “best price” reporting requirements in order to provide greater regulatory flexibilities to encourage manufacturers and states to enter into VBP arrangements.  CMS believes fostering VBP arrangements with drug manufacturers are an important strategy to manage drug costs and promote beneficiary access to needed medications. 

Manufacturers that offer VBP arrangements with commercial payers and offer these arrangements to states will be permitted to report varying best price points, as applicable.  States may choose to enter into these arrangements or opt out of them and continue to receive the traditional Federal Medicaid drug rebate, which would be calculated using the “best price” in a non-VBP arrangement that the manufacturer makes available for that drug in the quarter.  In order to provide sufficient time for states, payers, manufacturers and CMS to implement this “multiple best price/VBP” regulatory flexibility, these regulatory amendments will be effective January 1, 2022.

To further facilitate VBP arrangements, this final rule defines VBP arrangements as those that include evidence-based and/or outcomes-based measures; includes VBP arrangements under the definition of “bundled sale”; and permits manufacturer revisions to AMP and “best price” reporting beyond the current twelve-quarter time limit to allow for revisions to pricing metrics as a result of VBP arrangements.

Encourages the appropriate use of opioids and reduces prescription-related fraud, abuse and misuse

CMS regulations require that the state assess drug use information against predetermined standards developed directly by the state or obtained from another source. In administering their DUR programs, states have flexibility to develop or select standards that may best fit their programs and patient populations. This final rule amends the regulation to implement new opioid-related DUR standards that are required of states under section 1004 of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment (SUPPORT) for Patients and Communities Act (Pub. L. 115-271) as well as additional opioid-related DUR standards that CMS is adopting in this final rule under the authority of section 1927 of the Social Security Act.  These changes reflect CMS’ continued efforts to reduce prescription-related fraud, abuse and misuse, and assure that opioid prescriptions are appropriate, medically necessary, and not likely to result in adverse medical results.

Clarifies the application of the new authorized generic law to the calculation of a manufacturer’s brand name AMP

The Continuing Appropriations Act, 2020 and Health Extenders Act of 2019 (Pub. L. 116-59) made changes to the calculation of AMP for brand drugs to exclude the sales of authorized generic drugs when brand manufacturers have approved, allowed, or otherwise permitted an authorized generic to be sold under the brand name drug’s new drug application (NDA).  Prior to this statutory change, manufacturers included the sales of the authorized generic in the AMP of the brand name drug, which resulted in lowered AMPs and reduced rebates paid for the brand name drug.  While the statute is self-implementing, this final regulation provides additional clarity to these statutory changes so that manufacturers will understand that they can no longer include the sales of the authorized generic in the calculation of the brand name AMP regardless of the type of relationship between the brand name manufacturer and the authorized generic manufacturer.

Aligns regulation with statute and changes in marketplace, which enhance manufacturer and state understanding of the Medicaid Drug Rebate Program                                            

As the pharmaceutical marketplace evolves and new laws are passed, CMS is issuing this final rule to define and clarify regulations that will assist manufacturers and states in ensuring compliance with the Medicaid drug rebate statute.  The regulation does, among other things, the following:

  • Requires that manufacturers ensure, starting January 2023, that the full amount of patient assistance programs is passed on to the patient, and that no other entity receives any price concession, in order to exclude any such benefits from the calculation of their “best price” or AMP;
  • Clarifies that manufacturer rebates must be paid directly to the state, rather than the Medicaid Managed Care Organization (MCO), to qualify as a CMS-authorized supplemental rebate agreement;
  • Finalizes a narrower definition of new formulation than in the proposed regulation (which narrows the scope of drugs that will be identified as line extensions), and the proposed definition of oral solid dosage form, all of which would be used by the manufacturer effective in January 2022, as part of their determination of whether they should calculate an alternative inflation penalty on their oral brand name drugs;  
  • Creates new requirements around state reporting and certification of state drug utilization data, which are used by CMS and others for multiple program operation and integrity purposes; and
  • Codifies both the inflation rebate penalty for non-innovator multiple source drugs (generics) which was adopted in statute in 2015, as well as more-recent statutory amendments to the definitions of single source drug and innovator multiple source drug.

Third party liability

States are currently collecting information on liable third parties for all Medicaid beneficiaries and this rule instructs states when to cost avoid claims and when to pay and chase claims.  In instances when cost avoiding a claim might create an access to care issue for a beneficiary, a state is permitted to pay the claim first and then collect the applicable portion of the payment from the liable third party.