Medicaid Rebates To Increase $3.95bn With Revision For Line Extensions

CMS issues interim final rule to ensure there’s ‘no confusion’ that line extensions are now subject to higher Medicaid rebate requirements.

Medicaid is expected to save $3.95bn over 10 years under a revised approach to calculating rebates for prescription drug line extensions, according to the Centers for Medicare and Medicaid Services.

CMS includes the estimate in an interim final rule with a request for comment released March 29. The rule officially implements a statutory change in the rebate calculation for line extensions that passed Congress in early 2018 as part of the Bipartisan Budget Act.

The BBA modified a provision of the Affordable Care Act aimed at preventing manufacturers from avoiding Medicaid’s inflationary rebate, which is triggered when prices rise faster than the Consumer Price Index. Manufacturers used line extensions to effectively reset the Medicaid inflationary rebate to zero, as it would be for a new drug.

However, the provision did not work as intended and the BBA implemented a few formula for calculating alternative rebates that requires that manufacturers of line-extension drugs pay higher rebates for such price increases.

The BBA change became effective in October 2018 and CMS released guidance to manufacturers and states in August 2018 about it. However, CMS said it is now releasing an interim final rule so that its regulations “accurately reflect the statutory amendments” and “to ensure there is no confusion as to the rebate calculations that apply for such drugs for rebate periods beginning on or after Oct. 1, 2018.”

The agency will accept comments on the interim final rule up to 60 days after it’s published, which is scheduled for April 1.

The $3.95bn savings estimate, produced by the CMS Office of the Actuary, is smaller than the projections developed earlier by the Congressional Budget Act in its score for the BBA, CMS noted. CBO estimated the rebate change would produce $5.65bn in additional savings to Medicaid over 10 years.

CMS believes the OACT estimate is more accurate because it is based on second quarter 2018 drug rebate data along with first through fourth quarter 2017 state drug utilization data, which are more current than the data CBO used.

No Definition Of Line Extension In Rule

CMS did not finalize a regulatory definition of a line extension in the rule, despite its earlier requests for public comments on what such a definition should include.

 

Instead, the agency reiterated its position that manufacturers should rely on the statutory definition and “where appropriate are permitted to use reasonable assumptions in their determination of whether their drug qualifies as a line extension.” (Also see "Medicaid Add-On Rebates For Line Extensions Remain A Judgment Call" - Pink Sheet, 11 Feb, 2016.)

 

The agency added that “if we later decide to develop a regulatory definition of line extension drug, we will do so through our established Administrative Procedures Act compliant rulemaking process and issue a proposed rule.”

 

A line extension is defined in the law as “a single source drug or an innovator multiple source drug that is an oral solid dosage form.”  The definition includes “a new formulation of the drug, such as an extended release formulation,” but does not include “an abuse-deterrent formulation of the drug (as determined by the Secretary), regardless of whether such abuse-deterrent formulation is an extended release.” 

 

The exemption for abuse deterrent formulations was added by the 2016 Comprehensive Addiction and Recovery Act to remove a disincentive for developing such formulations. (Also see "Abuse-Deterrent Exemption From Medicaid Rebates Hinges On FDA Standards" - Pink Sheet, 22 Nov, 2016.)