[co-authors: Drew Savage, Gabrielle Simeck]
On December 14, 2023, the Centers for Medicare & Medicaid Services (CMS) published two “revised” guidance documents implementing the Medicare Part B and Part D inflation rebate provisions of the Inflation Reduction Act of 2022 (IRA). Although the overall structure of the implementation of the Part B and Part D inflation rebates remains the same, CMS did change some aspects of the programs in response to comments and intends to further revisit implementation through future rulemaking. By statute, CMS must implement the Part D inflation rebates through guidance through 2024. The IRA includes no such requirement as to Part B inflation rebates, but CMS indicates that it will rely on guidance to implement that program through 2024 as well. For both programs, CMS states an intent to engage in rulemaking for later years.
We previously summarized the inflation rebate provisions of the IRA in alerts here and here and the initial guidance here. This alert summarizes key provisions of the revised Part B inflation rebate guidance and Part D inflation rebate guidance below.
Medicare Part B Inflation Rebates
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Part B Rebatable Drugs
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Initial Guidance. Under the Initial Guidance and consistent with the statute, drugs subject to the Part B inflation rebate are single source drugs or biologicals (as that term is defined by statute), excluding qualifying biosimilar biological products, paid under Part B, certain vaccines, and low Medicare spend drugs. CMS indicated it would identify these drugs by their Healthcare Common Procedure Coding System (HCPCS) codes. To support such identification, CMS indicated it would exclude drugs that are billed using a HCPCS code that represents an “unclassified,” “unspecified,” or “not otherwise classified” drug or biological. CMS indicated that HCPCS codes that describe skin substitute products would not be considered Part B rebatable drugs for a calendar quarter during 2023.
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What Changed? CMS clarifies in the Final Guidance that:
- Drugs that share a code as of 10/1/03 excluded: “Single-source drugs or biological products that were within the same billing and payment code as of October 1, 2003 . . . are treated as multiple-source drugs and excluded from Part B inflation rebates.”
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Skin substitutes excluded (for now): HCPCS codes that describe skin substitute products are not subject to the coinsurance adjustment or Part B inflation rebates at this time (without limitation as to quarter) while CMS further deliberates on its payment policies for these products
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Radiopharmaceuticals excluded: Radiopharmaceuticals are not Part B rebatable drugs on the grounds that they are not paid under section 1847A of the Social Security Act and do not report average sales price (ASP).
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Part B Inflation Rebate Amount
- What Changed?
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Sequestration: CMS clarifies that it will not apply sequestration spending cuts to either the inflation adjusted payment amount or the rebate quarter payment amount when determining the inflation rebate amount. CMS further clarifies that it will not apply sequestration to calculations of beneficiary payment amounts.
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MA units: CMS clarifies the treatment of MA units, as discussed below.
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Restated ASP: CMS clarifies that, when CMS restates the ASP (or wholesale acquisition cost) for the applicable quarter, CMS will use the restated (i.e., corrected) payment amount in the formula.
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Exclusion of 340B Units
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Initial Guidance. CMS indicated that it would identify 340B units for exclusion by requiring providers and suppliers to use a JG or TB 340B modifier on their Part B claims (and, for 2023, excluding all units of the subset of 340B covered entities that are not required to do so until January 1, 2024).
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What Changed?
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The codes to be used: Consistent with the CY 2024 outpatient prospective payment system final rule, hospitals may use either the JG or TB modifier to identify 340B drugs for CY 2024. For CY 2025, however, only the TB modifier will be permitted.
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Exclusion of Dual Eligible Beneficiary Units
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Initial Guidance. CMS indicated that it would exclude units of drugs furnished to beneficiaries eligible for both Medicare and Medicaid from the rebate calculation.
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What Changed? CMS clarifies that only utilization for dual-eligibles for whom the drug is paid for under Medicare Part B with cost-sharing covered by Medicaid will be excluded. Units for rebatable drugs furnished to those who do not receive such cost-sharing assistance (i.e., Specified Low-Income Medicare Beneficiary (SLMB) Only, Qualified Disabled Working Individuals (QDWI), and Qualifying Individuals (QI) beneficiaries) will be included in the rebate calculation.
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Exclusion of MA Units (for Now)
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Initial Guidance. CMS indicated that units on which Part B inflation rebates would be invoiced would include units furnished to beneficiaries enrolled in MA plans, and sought comment on how to quantify those units furnished to MA enrollees, as well as how to remove from that universe those units excluded from rebate liability by statute, such as 340B and dual-eligible units.
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What Changed? CMS has decided not to subject MA units to Part B inflation rate liability at this time because of the operational issues. CMS reserves the right to subject them to such liability in the future.
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Exclusion of Discarded Drug Units
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Initial Guidance. Not addressed.
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What Changed? CMS indicates that it intends to consider whether to remove discarded drug units subject to a manufacturer refund through future rulemaking. CMS intends to include these units in Preliminary Rebate Reports and to propose a restatement process to remove them from rebate liability. These units are units of single source drugs and biological products, including biosimilar biological products, in single-use containers or single-dose packages and are subject to a refund where the amount of the drug discarded exceeds an applicable threshold.
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Identification of Payment Amount Benchmark Quarter
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Initial Guidance.
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Drugs approved on or before 12/1/20: The payment amount benchmark quarter is the quarter beginning on July 1, 2021. The initial guidance did not address any special circumstances regarding this category of drugs.
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Subsequently approved drugs: For Part B rebatable drugs first approved or licensed after December 1, 2020, known as “subsequently approved drugs,” CMS indicated that the payment amount benchmark quarter would be the third full calendar quarter after the day on which the drug was first marketed. CMS indicated it would use the date of first sale as reported by CMS in ASP data to determine the first marketed date.
- What Changed? CMS revises the guidance to clarify the identification of the payment amount benchmark quarter (or payment amount for such quarter) for certain drugs.
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Drugs approved on or before 12/1/20: CMS indicates that, if such drugs were not marketed until after that date (12/1/20), such drugs will be treated as a subsequently approved drug. The payment amount benchmark quarter will thus be the third full calendar quarter after the day on which the drug was first marketed and the benchmark Consumer Price Index for All Urban Consumers (CPI-U) will be that for the first month of that same quarter.
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First marketed date: With respect to the market date used to determine the payment amount benchmark quarter:
- Drugs that were billed under a not otherwise classified (NOC) code before being assigned a dedicated HCPCS code: For Part B rebatable drugs that were originally billed under a NOC code, CMS will use the payment for the third full quarter after the drug was assigned to a unique HCPCS code. The benchmark period CPI-U will be the first month of the third full quarter after the drug was assigned a unique HCPCS code.
- Drugs that were multiple source, which then become single source: For Part B rebatable drugs that were previously multiple-source drugs billed using a shared HCPCS code but that subsequently became single source drugs as products were discontinued, CMS will use the payment amount for the group HCPCS code to set the benchmark payment amount.
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Shortages and Severe Supply Chain Disruptions
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Initial Guidance. CMS sought comment on how to reduce or waive the rebate amount for products on the 506E shortage list and for biosimilars experiencing severe supply chain disruptions.
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What Changed? CMS will provide reductions under two policies:
- Currently in shortage: For any “Part B rebatable drug that is described as ‘currently in shortage’ on [a Food and Drug Administration (FDA)] shortage list during any time during a calendar quarter, CMS will apply a variable reduction to the rebate amount based on the time the drug is in shortage and will reduce the overall reduction amount over time.” CMS will provide a greater reduction for plasma-derived products as opposed to non-plasma derived products on the rationale that these products depend on a donated supply that can impact downstream production and limit the ability to respond to a shortage.
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Severe supply chain disruption: Following from a written request submitted to CMS by the manufacturer, and should CMS determine there is a severe supply chain disruption for a biosimilar biological product, CMS will provide a standard reduction of 75% in the rebate amount. The reduction will be time-limited.
- Manufacturers may receive a rebate reduction under only one and not both policies.
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Ensuring the Integrity of Part B Inflation Rebates
CMS noted that it could revise the rebate amount or true-up amount due to a calculation error or misreported data at any point after the rebate quarter ends.
Medicare Part D Inflation Rebates
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Part D Rebatable Drugs
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Initial Guidance. In the Initial Guidance and consistent with the statute, CMS stated that Part D rebatable drugs are all products approved under a New Drug Application or licensed under a Biologics License Application (including biosimilars), as well as certain generics that “feel like” an innovator, excluding low Medicare spend drugs.
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What Changed? CMS clarifies how it will calculate the rebate amount for a generic drug that meets the Part D rebatable drug definition on the first day of an applicable period but ceases to do so later during such applicable period. Specifically, CMS will use the FDA’s Orange Book to identify whether FDA has approved any generic products that are therapeutically equivalent to the generic in question. CMS will “then use the NDC Directory to determine the marketing status of such therapeutically equivalent drug and to determine whether, during the applicable period, the therapeutically equivalent drug was marketed.” Any units dispensed after the date on which the generic in question no longer meets the Part D rebatable drug definition will be excluded.
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Drugs Not Covered Under a Medicaid Drug Rebate Program (MDRP) Agreement
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Initial Guidance. CMS acknowledged in the Initial Guidance that not all drugs that qualify as a Part D rebatable drug are associated with a Medicaid Drug Rebate Program (MDRP) agreement requiring the manufacturer to report the average manufacturer price (AMP) on which the Part D inflation rebate is based. However, because CMS would not have the AMP information needed to calculate Part D inflation rebates for a manufacturer without an MDRP agreement in place, CMS explained in the Initial Guidance that it would not subject a manufacturer without such an agreement to Part D inflation rebates but that the agency was working on determining how to collect the data necessary to do so.
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What Changed? No change.
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Calculating the Part D Inflation Rebate Amount
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Calculating the AnMP and the Benchmark Period Manufacturer Price
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First Applicable (Rebate) Period for Subsequently Approved Drugs
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Initial Guidance. CMS explained in the Initial Guidance that the applicable period for Part D inflation rebates typically is a four-quarter period beginning with the fourth quarter of the calendar year through the third quarter of the next calendar year. For subsequently approved drugs, CMS proposed that the first applicable period would be truncated to the first three quarters of the first calendar year that begins after the payment amount benchmark period ends. After the first applicable period, the regular four quarter applicable period would apply.
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What Changed? CMS changes the applicable period for subsequently approved drugs to begin on October 1 of the year following the payment amount benchmark period. CMS notes that doing so will avoid any overlap between the payment amount benchmark period and the first applicable period.
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Excluding 340B Units
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Initial Guidance. In the Initial Guidance, CMS sought comment on whether “requiring that a 340B indicator be included on the [Part D prescription drug event (PDE)] record is the most reliable way to identify drugs that are subject to a 340B discount that were dispensed under Medicare Part D.
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What Changed? CMS states that it will continue to evaluate different options for identifying 340B units and will finalize a policy to exclude them by 2026.
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Use of PDE Data to Determine Total Number of Units
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Initial Guidance. Because the unit type reported with respect to Part D PDE units and that with respect to AMP under the MDRP may be distinct, CMS stated in the Initial Guidance that it would “compare the Part D rebatable drug units reported in the PDE record to the units reported . . . for the monthly AMP” and convert units as needed.
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What Changed? No change.
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Situations in Which Manufacturers Do Not Report Units
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Initial Guidance. The Initial Guidance addressed the possibility of there being no sales of a subsequently approved drug for the entire payment amount benchmark period. CMS stated that a manufacturer’s reported AMP price would be used in such circumstances and the benchmark period manufacturer price would be calculated as an average of reported AMP price(s).
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What Changed? CMS clarifies that the above approach will apply when calculating both the AnMP and the benchmark period manufacturer price but specifies that:
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Shortages and Severe Supply Chain Disruptions
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Initial Guidance. As with the Part B inflation rebate, CMS sought comment in the Initial Guidance with respect to how to reduce or waive the Part D rebate amount for products on the 506E shortage list and for biosimilars experiencing severe supply chain disruptions.
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What Changed? CMS clarifies the following details regarding drug shortages:
- Currently in shortage: Similar to the Part B inflation rebate, for drugs listed on the FDA shortage list as “currently in shortage” at any time during the applicable period, CMS will grant a reduction in the rebate based on the length of time the drug is in shortage. CMS will provide a greater reduction for plasma-derived products as opposed to non-plasma derived products on the rationale that these products depend on a donated supply that can impact downstream production and limit the ability to respond to a shortage. CMS will also provide a greater reduction for generic products.
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Severe supply chain disruption: Following from a written request submitted to CMS by the manufacturer, and should CMS determine that (1) there is a severe supply chain disruption for a generic drug or biosimilar biological product or (2) a generic Part D rebatable drug is likely to be in shortage without additional relief, CMS will provide a standard reduction of 75% in the rebate amount. The reduction will be time-limited.
- Manufacturers may receive a rebate reduction under only one and not both policies.
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Line Extensions
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Initial Guidance. In the Initial Guidance, CMS stated that it would calculate the Part D inflation rebate amount for line extensions as follows:
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First, CMS would “identify line extensions based on manufacturer reporting of drugs as line extensions and related pricing and product data” under the MDRP.
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Second, CMS would determine the greater of “(1) the inflation rebate amount for the applicable period . . . for the Part D rebatable line extension drug ["option (1)”]; or, (2) the alternative inflation rebate amount calculated under the alternative rebate formula ["option (2)”]” for such drug.
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Third, the greater of the amounts under option (1) and option (2) would be multiplied by the total units of the drug.
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What Changed? Nothing fundamentally, but CMS clarifies that, where an initial drug was not identified in the last quarter of the applicable period for a drug that is a line extension, CMS will use the initial drug that was identified most recently in the applicable period to determine the initial drug for the line extension alternative rebate calculation.
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Ensuring the Integrity of the Part D Inflation Rebate Payments
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Initial Guidance. By statute, CMS is required to send a Rebate Report and invoice to a manufacturer for the amount of a Part D inflation rebate due. In the Initial Guidance, CMS proposed to issue the Report and invoice as follows:
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Step One. No later than six months after the end of the rebate period, the manufacturer would receive a Preliminary Rebate Report, which would include the total number of units subject to a rebate (reporting on such utilization is not required by statute), the NDC of the drug, the rebate amount due, and the amount by which the AnMP exceeds the pace of inflation for the applicable period.
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Step Two. The manufacturer would have ten calendar days after receiving the Preliminary Rebate Report to identify calculation errors to CMS, and the agency would have discretion to consider such identified errors.
- Step Three. The manufacturer would receive the final Rebate Report no later than nine months after the end of the rebate year.
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Step Four. The manufacturer would have 30 calendar days from receipt of the final Rebate Report to pay the rebate amount owed.
- Step Five. Approximately one year after the final Rebate Report is sent, CMS would conduct a one-time true-up recalculation to account for any updated data, including updates from plan sponsors on Part D units dispensed.
CMS noted in the Initial Guidance that it could revise the rebate amount or true-up amount based on any calculation error or misreporting of manufacturer pricing or product data at any point after the rebate year ends.
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