What the Medicaid Rebate Final Rule Means for Manufacturers

Definition of a Covered Outpatient Drug (COD)

The definition of what qualifies as a COD is clarified, providing more precision about which drugs are eligible for Medicaid rebates.

The Final Rule has important implications for Medicaid inpatient billing for CODs that are billed as itemized separately from a bundled payment, e.g. DRG, to the state Medicaid program. These implications primarily center on the accurate classification and reporting of drug pricing and product information, along with the rebate and penalty structures that affect how drugs are billed, reported, and reimbursed. 

For all state Medicaid programs that have a SPA in place for the DRG payment process for inpatient billing, drugs that are categorized as CODs must be accurately classified and reported separately from the DRG for reimbursement. If a drug is misclassified (e.g., reported as an innovator drug when it should be a non-innovator or vice versa), the manufacturer could face penalties.

Keep in mind that the misclassifications will affect the Unit Rebate Amount (URA) and, by extension, the Medicaid rebate calculations. Medicaid inpatient billing will be impacted if drugs are billed under an incorrect category, as this could lead to either over- or under-payment of rebates to the state Medicaid program.

One key consideration is that Medicaid inpatient claims for CODs that are not supported by accurate product information (e.g., National Drug Code (NDC), pricing, and drug category) could be subject to delays or corrections by the state, which may lead to adjustments in billing amounts.

For pharmaceutical Manufacturers that misclassified a COD and the state Medicaid Agency has already processed inpatient claims using that classification, the manufacturer must correct the misclassification and pay any unpaid rebates that resulted from the error. This could lead to retroactive adjustments in Medicaid claims. Retroactive Adjustments could include overpayment if the adjustment reveals that too much money was paid for a claim (for example, due to misclassification or incorrect reporting), the healthcare provider or drug manufacturer will be required to repay the excess amount. Or it could result in an overpayment,  if the adjustment indicates that the claim was underpaid (due to errors in pricing, coding, or rebates), the healthcare provider or drug manufacturer may receive additional payment to cover the difference.

This misclassification could also result in Medicaid Rebate Adjustments. For CODs billed to Medicaid, if misclassification is identified (either by the manufacturer or by CMS), the manufacturer must pay back the difference in rebates for the affected periods. In Medicaid inpatient billing, this may involve retroactive billing adjustments, including the submission of corrected invoices for any previous overpayment or underpayment due to misclassification.

Implications for misclassification could result in CMS suspending the drug manufacturer’s rebate agreement. If a manufacturer fails to report the correct drug product information or fails to correct misclassifications within the required timeframe, their rebate agreement with CMS may be suspended. This could affect how CODs are reimbursed to the state Medicaid program for inpatient services.  During the period of suspension, Federal Financial Participation (FFP) for the drugs would not be available for Medicaid claims. While this suspension applies specifically to rebate agreements, the practical impact could be that states may not receive full reimbursement for inpatient drugs, which may require state Medicaid programs to cover the costs through state-only funds, depending on the circumstances.

The rule mandates that manufacturers provide accurate and timely drug pricing and product information. If a manufacturer fails to meet these requirements, CMS could suspend the drug's COD status. For Medicaid inpatient billing, this means that states may need to handle claims for these drugs differently if the drugs are no longer classified as CODs or if CMS takes corrective actions that affect the drugs’ billing status. Delays in reporting drug information or misclassification corrections could lead to inaccurate billing for inpatient services, affecting both reimbursement timelines and amounts.

CMS will publish annual reports on misclassifications and corrective actions. This transparency will help state Medicaid programs stay informed about which drugs have been misclassified and may need to be re-billed or adjusted in the inpatient billing system.

States may also be required to adjust their processes for reviewing inpatient billing for CODs in light of these new reporting and classification requirements. This could involve additional oversight of the accuracy of inpatient claims and drug classifications to ensure compliance with the Final Rule.

The need for timely adjustments may increase the administrative burden on both manufacturers and state Medicaid programs to ensure accurate billing and rebate processing for inpatient claims.

Drug Classification and Penalties for Misclassification

The rule outlines more stringent guidelines for classifying drugs and imposes penalties for manufacturers that misclassify drugs in terms of eligibility for Medicaid drug rebates.  

Drug Product Information Definition

The rule finalizes the definition of "drug product information" to include details such as the NDC, drug category, drug name, dosage form, FDA approval dates, and COD status. CMS clarified that drug product information is generally static once established and will be tied to the drug throughout its history. The catch-all phrase from the proposed rule, "any other information deemed necessary," was removed.

Misclassification and Penalties

CMS outlines a process for identifying and correcting misclassifications of drug pricing and product data. 

Misclassification occurs if:

• A manufacturer reports incorrect drug category or product data.
• A manufacturer certifies correct data but pays rebates at an incorrect level.
• Penalties for misclassifications are applied to both pre- and post-2019 periods, with manufacturers required to correct errors and pay unpaid rebates.

Notification and Correction Process

CMS will notify manufacturers of misclassifications and give them 30 days to submit corrected information. Manufacturers must pay back any unpaid rebates within 60 days. If a manufacturer fails to comply, CMS may correct the misclassification itself and impose additional penalties, including civil monetary penalties (CMPs), suspension of the drug’s COD status, or termination from the MDRP.

Transparency and Reporting

CMS will publish an annual report on misclassified drugs, detailing steps taken to correct misclassifications, including actions against manufacturers. The report will not disclose proprietary pricing information.

Suspension for Late Reporting

If manufacturers fail to report required drug pricing or product information within 90 days of the deadline, CMS will suspend their rebate agreement for all CODs. The suspension lasts until the required information is reported and certified, with a minimum of 30 days.

Impact on 340B and Medicare Part B

For drugs covered under the 340B Program, manufacturers must still offer them during the suspension period, but FFP is unavailable for Medicaid claims. Medicare Part B coverage remains, but FFP is unavailable for crossover claims for dual eligibles.

Definition of an "Internal Investigation"

This provision provides a clearer framework for what constitutes an internal investigation into drug pricing, sales, or other issues relevant to compliance with Medicaid requirements.

Definition of the "Market Date"

The rule establishes a clearer definition of "market date," which is important for determining when drugs are considered to have entered the market for rebate purposes.

12-Quarter Deadline for Manufacturer Audits

Manufacturers now have a 12-quarter window to audit or dispute invoiced rebate units, placing a time limit on these processes to ensure timely resolution of discrepancies.

Revisions to Patient Support Program Exclusions

Changes are made to the regulatory exclusions for patient support programs, likely clarifying the circumstances under which such programs are eligible or ineligible for Medicaid rebate purposes.

Revisions to Medicaid Managed Care Standard Contract Requirements

The rule revises requirements for Medicaid managed care contracts, potentially impacting how Medicaid programs are administered in relation to drug rebates.

Overall, the Final Rule aims to streamline and clarify drug rebate and pricing regulations, improve transparency, and enhance compliance mechanisms within Medicaid. However, certain proposals, particularly those expanding the definitions of manufacturer-related terms and addressing stacking, were not included in the finalized version.

Please contact us for more insight on the Final Rule.