On February 9, 2023, the Centers for Medicare and Medicaid Services (CMS) issued initial program guidance related to the implementation of the Prescription Drug Inflation Rebate Program. The rebate program was authorized under Sections 11101 (as to Medicare Part B) and 11102 (as to Medicare Part D) of the Inflation Reduction Act (IRA). The guidance lays out key information on CMS’s new industry-changing authority over prescription drug pricing. Of particular interest to stakeholders are the forthcoming changes to claim-level identification of drugs obtained through the 340B Drug Pricing Program and changes that could prompt a new federal False Claims Act enforcement risk related to manufacturer price reporting.
Under the IRA, drug manufacturers are required to pay a rebate to Medicare if they raise the price for certain drugs faster than the rate of inflation. For part B drugs, price changes will be measured based on the average sales price. For part D drugs, price changes will be measured based on the average manufacturer price. The base year for measuring cumulative price changes relative to inflation is 2021. If prices increase higher than the rate of inflation, manufacturers will be required to pay the difference in the form of a rebate to Medicare. The rebate amounts will be calculated and invoiced by CMS, with such calculation equal to the total number of units sold in Medicare multiplied by the amount, if any, by which a drug’s price in a given year exceeds the inflation-adjusted price. After receipt of the invoice, manufacturers will have 30 days to pay the rebate, which will be deposited in the Medicare Supplementary Medical Insurance trust fund. The rebates apply to certain Medicare Part B and Medicare Part D drugs, and CMS issued guidance on each program.
In the Part B rebate guidance, CMS seeks comment and explains several aspects of the Medicare Prescription Drug Inflation Rebate Program, including the identification of Part B rebatable drugs, the computation of beneficiary coinsurance amounts, the determination of the number of drug units to be used for calculating rebates, the method for identification of 340B drugs to exclude them from the rebate calculations, and the enforcement mechanisms to be used to ensure integrity of the rebate program.
In the Part D rebate guidance, CMS seeks comment and explains implementation mechanisms for the Part D inflation rebates on various topics, including the identification of the Part D rebatable drug billing units for the prescription claim and prescription drug event records, the method for identification of 340B drugs to exclude them from the rebate calculations, the reduction of waiver of rebate amounts in the event of supply chain disruptions, and the enforcement mechanisms to be used to ensure integrity of the rebate program.
340 Program Implications
In the guidance on 340B programs for Part B claims, CMS describes and seeks comments on methods that will be used in 2023 to identify 340B drugs in addition to the requirement of the “JG” or “TB” modifier on all claim lines for separately payable Part B drugs beginning on January 1, 2024. For 2023, CMS will identify and exclude 340B drugs from the rebate calculations using the following methods:
Claim lines billed with the “JG” and “TB” modifiers
- All separately payable drug units on institutional claims billed by critical access hospitals, Maryland waiver hospitals and non-excepted off-campus provider-based departments
- All drug units on professional claims for Medicare suppliers listed by the Health Resources and Services Administration as participating in the 340B Program, by Employer Identification Number.
As to Part D claims, the rebate requirement does not begin until 2026, but CMS has nevertheless proposed a method for identifying 340B drugs dispensed to Medicare Part D beneficiaries. CMS believes that the existing National Council for Prescription Drug Programs (NCPDP) Telecommunications Standard Version D.0 for pharmacy claims includes a field where a 340B indicator could be provided, although CMS acknowledged that this is not widely used. CMS stated that code “20” can be used to identify 340B drugs. CMS further acknowledged that this indictor can only be used prospectively and noted that some 340B claims may be identified retrospectively. CMS remarked that there is an existing NCPDP transaction (N1) to retrospectively identify 340B drugs. CMS seeks comments on whether the preferred mechanism is the use of these existing NCPDP fields and transactions to identify 340B drug units billed to Medicare Part D, or whether another reliable option is available.
In each memo, CMS explains enforcement mechanisms to be used for the rebate program, including the issuance of civil monetary penalties equal to at least 125% of the calculated rebate amount. This new program also could give rise to federal False Claims Act allegations related to drug price reporting. Manufacturers have experienced similar claims related to price reporting in the Medicaid rebate program. With Medicare drug pricing also becoming tied to average sales price or average manufacturer price, pricing and discounting practices may take on more importance from a False Claims Act risk perspective.
CMS solicits comments on both the Part B and Part D guidance by March 11, 2023. All comments can be submitted to IRARebateandNegotiation@cms.hhs.gov.
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McDermott is closely following the rebate provisions as well as all CMS developments under the IRA. Please do not hesitate to reach out to the McDermott team if you have any questions about the IRA rebate provisions or if you would like assistance in preparing comments to the guidance.
McDermott Will & Emery law clerk Olivia Kaufmann also contributed to this On The Subject.