CMS Delays Part of Medicaid Outpatient Drug Rule

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By Bronwyn Mixter

April 5 — The CMS has delayed the effective date for part of a final rule that changes how the government pays for outpatient prescription drugs in the Medicaid program.

The delay affects certain drugs, such as those that are injected or inhaled, and responds to a request from drug industry groups for more time.

On Jan. 21, the Centers for Medicare & Medicaid Services released the final rule on outpatient drugs (CMS-2345-FC; RIN 0938-AQ41) . The final rule implements provisions in the Affordable Care Act, which revised the formula for reimbursing pharmacies for generic and multiple-source drugs in Medicaid by using the average manufacturer price (AMP) to set the federal upper limit or FUL. FUL, a type of cost-containment strategy, is the maximum Medicaid reimbursement rate for multiple-source drugs.

The final rule establishes a definition of AMP for so-called 5i drugs: inhalation, infusion, instilled, implanted or injectable drugs. This part of the final rule was set to take effect on April 1, but the CMS said in a March 31 announcement that it has delayed the effective date until July 1.

The CMS said in its March 31 statement that “it is our understanding that the greatest challenges for manufacturers” related to determining the AMP for 5i drugs “that are not generally dispensed through retail community pharmacies.”

The Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Innovation Organization (BIO) requested the extension of the effective date in a Feb. 26 letter to the CMS, saying the extension was needed to “give manufacturers enough time to take the steps necessary to calculate Medicaid rebates according to the final rule's requirements.”

Details From Attorneys

Stephanie Trunk, of Arent Fox LLP in Washington, told Bloomberg BNA in an April 5 e-mail that the CMS “is delaying the effective date for a very limited portion of the final AMP rule related to the implementation of changes to the AMP calculation for 5i drugs that are not generally dispensed at retail.”

Trunk said that until July, manufacturers can use “existing approaches as documented in their reasonable assumptions to determine whether a 5i drug is generally dispensed by retail community pharmacies, which dictates whether a 5i AMP methodology or retail community pharmacy focused AMP methodology should be” used.

The PhRMA and BIO letter noted that under the CMS's final rule, a 5i drug will be considered “not generally dispensed through a retail community pharmacy” if 70 percent or more of its sales are to entities that aren't retail community pharmacies, in what's known as the 70/30 test. The industry groups' letter detailed the lengths that companies would have to go through to make a monthly 70/30 determination.

Donna Lee Yesner, of Morgan Lewis & Bockius LLP in Washington, told Bloomberg BNA in an April 5 e-mail that most of the requirements in the final rule “necessitating significant system changes involve 5i AMP, particularly how to apply the 70/30 ratio for determining on a monthly basis whether a drug is not generally sold to retail community pharmacies and a smoothing mechanism to reduce the likelihood of switching back and forth from retail to non-retail.”

“The calculation of 5i AMP is also unique so manufacturers need to set up a third calculation which incorporates the statute and final rule and certain assumptions where the final rule is unclear,” Yesner said. “For these reasons, CMS is rightly deferring enforcement of the 5i AMP portion of the rule.”

To contact the reporter on this story: Bronwyn Mixter in Washington at

To contact the editor responsible for this story: Janey Cohen at

For More Information

The CMS announcement is at

The final rule is at

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