CMS To Codify How 340B, Drug Shortages Factor Into Medicare Inflation Rebate Policy

July 11, 2024 1:08 pm

Nearly two years since Medicare first implemented a program requiring drug companies pay back the government when they raise the prices for drugs covered under Medicare Parts B and D faster than the rate of inflation, CMS is proposing to update its efforts and codify policies to adjust how 340B drugs and drugs currently in shortage are considered when calculating total inflation rebate amounts, the proposed rule for the calendar year 2025 physician fee schedule released Wednesday (July 10) says.

A fact sheet provided by CMS also shares how the agency seeks to update its invoicing process for inflation rebates and proposes creating a process to reconcile rebate amounts when new or revised information emerges.

CMS is proposing to remove 340B drugs units for professional claims that were submitted by Medicare suppliers associated with 340B-covered entities with dates of service during 2024 and 2023. This would align with revised guidance published in December for the Part B inflation rebate program that separates and excludes the units of drugs for which a drug maker provides a discount associated with the federal drug discount program from the units of drugs for which a manufacturer may be liable to pay a Part B inflation rebate.

Additionally, according to the fact sheet, CMS is proposing to:

  • Compare the amounts paid for a rebatable Part B drug quarterly pricing files published by CMS to the inflation-adjusted payment amount for a given quarter to assist in determining whether the criteria for a coinsurance adjustment are met.
  • Identify a benchmark quarter for drugs that received approval or licensure by FDA on or before Dec. 1, 2020, but were first marketed after that date.
  • Establish a method and process for reconciliation of a rebate amount to account for revised information like a calculation error or misreporting, including whatever circumstances that led to the need for reconciliation.
  • Exclude the units of refundable single-dose container or single-use package drugs, which are subject to discarded drug refunds, from the calculation of inflation rebate amounts in the reconciliation process.
  • Establish a civil money penalty process for when a drug maker of a Part B rebatable drug fails to pay the rebate amount in full by the payment deadline for the applicable calendar quarter.

CMS is proposing similar policy adjustments for the Part D inflation rebate program. The agency wants to establish a process to estimate the total number of units of a Part D rebatable drug that are provided a 340B discount and exclude these drug units from the total number of units used to calculate the total rebate amount for a Part D rebatable drug. This would apply for claims with dates of service on or after Jan. 1, 2026.

CMS is also proposing new policies that would identify a payment amount benchmark period for a Part D rebatable drug in certain instances of a missing Average Manufacturer Price (AMP), establish a method and process for reconciliation when new information surfaces regarding inflation rebate amounts, and set up civil money penalties for when drug makers are late to pay inflation rebate amounts in full in a timely manner.

CMS also wants to establish a standard method and process for issuing rebate reports to drug makers that may include the use of an online portal. CMS would first provide a preliminary rebate report and a suggestion of error period for drug makers to review the preliminary rebate amount and identify certain mathematical errors. Following the suggestion of error period, CMS will provide the official rebate report, which will include the rebate amount.

The rebate amount may be reduced for drugs currently in shortage, facing a severe supply chain disruption, or likely to be in shortage, or adjusted in the program’s reconciliation process.

When reconciling rebate amounts, CMS says it would provide drug makers with reconciled inflation rebates one full year after a company receives its rebate report. For inflation rebates under Part D, the agency is specifically proposing two regular reconciliations of a rebate amount to occur at 12 months and 36 months after the receipt of the rebate report.

“CMS is proposing to conduct two Part D reconciliations to ensure there is enough time to capture the relevant data for an accurate rebate amount. The 12-month reconciliation would provide sufficient time to capture the majority of updates to the data that encompass the rebate amount. The 36-month reconciliation would be sufficient to capture the remainder of the run-out for MDRP AMP restatements,” CMS says.

The fact sheet also clarifies how CMS plans to calculate inflation rebates for Part B and Part D drugs that are currently in shortage, facing a severe supply chain disruption or likely to be in shortage. The agency will first determine the number of days a drug has been described as “currently in shortage” on an FDA shortage list during the period when the inflation rebate is being assessed. CMS will then divide that number by the total number of days in the calendar quarter or applicable period for the rebate, and then multiply that amount by a percentage that is decreased over time.

For a Part B or Part D rebatable biosimilars or generic Part D rebatable drugs facing a severe supply chain disruption, or a generic Part D rebatable drug likely to be in shortage, drug makers will have to submit to CMS a request for a rebate reduction along with supporting documentation.

“If the drug company submits a timely and complete request and CMS determines that a reduction should be granted based on its review of the request and supporting documentation, CMS will reduce the rebate amount by 75 percent for one year regardless of whether the drug subsequently goes on an FDA shortage list during that year,” CMS says. “If a severe supply chain disruption or likely shortage is not resolved in the first year, the drug company may apply for an extension of the rebate reduction for a second year. Reductions for a severe supply chain disruption or likely shortage are limited to two consecutive years.”

This myriad of policy fixes and adjustments comes months after CMS released draft guidance for how it expects to implement the next round of its drug price negotiation program in Medicare, possibly the most controversial price control under the Inflation Reduction Act alongside inflation rebates, a $35 cap on monthly copay costs for insulin products and a complete redesign of the Part D benefit that includes a $2,000 cap on all out-of-pocket drug spending starting in 2025.

Republican lawmakers and the drug industry are primarily against further implementation of a policy permitting the government to negotiate lower drug prices for Medicare beneficiaries.

The agency is also taking input on its idea to establish a Part D claims data repository in future years of the Part D inflation rebate program, which would require 340B covered entities to submit certain data elements from 340B-identified Part D claims to the repository so CMS can identify 340B drug units to exclude from Part D inflation rebate calculations.

CMS is soliciting comments on its proposed changes until Sept. 9.