MDRP multiple best prices option and territory exclusion update plus Part B discarded drug refund

While Congress continues to consider significant drug pricing legislation, separate regulatory and statutory changes have been finalized this week with potential implications for manufacturers that report prices into the Medicaid Drug Rebate Program (MDRP) and the Medicare Part B programs, respectively.  We describe below certain key takeaways from an MDRP regulation, as well as from the Infrastructure Investment and Jobs Act.

  1. On November 17, 2021 the Centers for Medicare & Medicaid Services (CMS) issued a final rule delaying the effective date of two previously-adopted regulatory provisions:
  • Multiple Best Prices (BPs) Reporting Option: The final rule delays by six months, from January 1, 2022, to July 1, 2022, the effective date of the multiple best prices reporting option for value-based purchasing (VBP) arrangements under the MDRP.

  • Territories: The final rule further delays by nine months, from April 1, 2022, to January 1, 2023, the effective date of the changes to the definitions of “States” and “United States” to include American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands.

The final rule was published in the Federal Register on November 19, 2021. We previously issued an alert on CMS’s proposal to the multiple BPs reporting option final rule, available here; an alert on the changes to the definitions of “States” and “United States”, available here; and two alerts on previous delays of the effective date of the addition of the territories to the definitions of “States” and “United States”, and available here.

  1. On November 15, 2021, the federal Infrastructure Investment and Jobs Act, H.R. 3684 was signed into law. The law includes a provision that requires manufacturers of certain single-dose container or single-use package drugs payable under Medicare Part B to provide refunds to Medicare with respect to discarded amounts of such drugs.

Each of the above changes are described in more detail, below.

CMS rulemaking: Delay of MDRP multiple BPs reporting option

CMS has finalized its proposal to delay the effective date of the following change to the regulatory definition of “best price” at 42 C.F.R. § 447.505(a), which will expressly enable the reporting of multiple BPs for VBP arrangements:

Best price means, for a single source drug or innovator multiple source drug of a manufacturer (including the lowest price available to any entity for an authorized generic drug), the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity in the United States in any pricing structure (including capitated payments), in the same quarter for which the AMP is computed. If a manufacturer offers a value based purchasing arrangement (as defined at § 447.502) to all states, the lowest price available from a manufacturer may include varying best price points for a single dosage form and strength as a result of that value based purchasing arrangement.

CMS’s stated purpose of the delay is “to provide more time for CMS, states, and manufacturers to make the complex system changes necessary to implement the new BP and VBP program, and assure patient access and quality of care, given the current need to devote resources to the public health emergency (PHE) relating to COVID-19 that has been in effect, and will likely remain in effect at least through 2021.”  Specific concerns noted by CMS include: 

  • States will not have the necessary infrastructure in place by January 1, 2022, to participate in VBP arrangements and appropriately track beneficiaries and outcomes.
  • Its new Medicaid Drug Program (MDP) system for price reporting, which went into effect on November 8, 2021, will not be ready to accommodate multiple BPs reporting by year end.
  • “[T]he demands on researching, producing, and distributing COVID-19 drug treatments and vaccines have likely diverted some manufacturer financial and human resources from developing and implementing system changes that would be required to enter multiple best price offers in the MDP system.” 
  • The significant expansion of Medicaid and several new mandatory benefit requirements under the American Rescue Plan Act of 2021 will limit the resources that states can devote to implementing the multiple BPs reporting option.

CMS expects to issue additional guidance for states and manufacturers on reporting and accessing the multiple BPs information in the MDP system before the multiple BPs reporting option takes effect, as well as with respect to:

  • “the interaction between VBP and Medicare Part B [average sales price (ASP)] calculations” and
  • “existing Medicaid access and beneficiary protections when engaging in VBP arrangements.”  

CMS does not plan on issuing guidance on how to operationalize, evaluate, or monitor specific VBP arrangements.

CMS rulemaking: Further delay of inclusion of territories in definitions of “states” and “United States” in the MDRP

CMS previously delayed the changes to the definitions of “States” and “United States” at 42 C.F.R. § 447.502 to include the U.S. territories of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the Virgin Islands, from the provision’s original effective date of April 1, 2017, to April 1, 2020, and then again to April 1, 2022.  

With this final rule, CMS is further delaying the effective date of this provision to January 1, 2023. CMS had considered delaying the effective to as late as April 1, 2024, but chose not to do so, seeking to “balance the willingness of territories that want to participate, while accommodating the time to prepare waivers for those that do not.” CMS believes it achieved this balance by both giving the territories a firm deadline for determining whether to seek a waiver to opt out of participation in the MDRP and allowing Puerto Rico, which will be prepared to participate even earlier, the opportunity to participate before April 1, 2024.

As noted in our previous alerts, the U.S. territories may seek a waiver from MDRP participation under Section 1902(j) (American Samoa and the Northern Mariana Islands) or Section 1115(a)(1) (Puerto Rico, the Virgin Islands, and Guam) of the Social Security Act, and need to do so before the January 1, 2024 deadline if they do not want to participate in the MDRP.

Statutory change: Requiring manufacturers to provide Medicare Part B refunds for certain discarded drugs

Effective January 1, 2023, Section 90004 of the Infrastructure Investment and Jobs Act amends Section 1847A of the Social Security Act to require manufacturers to pay refunds to Medicare for discarded amounts of single source drugs or biologicals or biosimilar biological products in single-use packages or single dose containers where the discarded amount exceeds an applicable threshold. The details of this provision are as follows:

  • A single-dose container or single-use package drug is defined as a single source drug or biological as defined at Section 1847A(c)(6)(D) or biosimilar biological products as defined at 1847A(c)(6)(D) “furnished from” such container or package. It does not include:

    1. Radiopharmaceuticals or imaging agents,

    2. Drugs that require filtration during the preparation process consistent with the drug’s label,

    3. New drugs, i.e., those for which Medicare Part B payment has been made for fewer than 18 months, or

    4. Drugs approved under an abbreviated new drug application or multiple source drugs.

  • The refund is calculated as the amount by which the total value of discarded drug under Part B for a particular quarter exceeds an applicable threshold, i.e., 10 percent of total allowed charges for the drug under Part B in the quarter (excluding drugs paid for as part of a bundled payment). 

    1. The term “total allowed charges” is undefined.

    2. For drugs that have unique circumstances related to loss of product similar to those of filtered drugs, CMS may, through notice and comment rulemaking, increase the percentage of total allowed charges.

  • The total value of discarded drug is calculated as:

    1. The number of billing and payment units of a drug that were discarded for a quarter, identified using the JW modifier, excluding units paid for as part of a bundled payment.

    2. Multiplied by the Medicare Part B payment rate for the quarter, i.e., the lesser of ASP plus 6 percent or wholesale acquisition cost (WAC) plus 6 percent for a drug or biological or, for a biosimilar biological product, the ASP for the biosimilar biological plus 6 percent of the lesser of ASP or WAC for the reference biological product.

Notably, the total value of discarded drug is calculated based on the described payment amount under Part B, which does not appear to account for adjustments to such payment amount with respect to 340B-purchased drugs under the outpatient prospective payment system.

  • The HHS Secretary must provide information to manufacturers on the number of discarded units and the total refund for a drug (with the deadline for providing that information unspecified).
  • The HHS Secretary may audit manufacturers with respect to refunds and providers with respect to claims (presumably including the use of the JW modifier).
  • Manufacturers that fail to pay refunds are subject to civil monetary penalties (CMPs) in the amount of 125 percent of the refund amount.
  • The HHS Secretary is to submit a report to Congress within three years of enactment discussing the impact of the law on “licensure, market entry, market retention, or marketing of biosimilar biological products.”
  • The statute does not address government price reporting implications of the refunds, and manufacturers should carefully consider the implications of these refunds for the various price types.

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As always, it is important that you carefully review the final rule and the enacted legislation in light of considerations that may be relevant to your organization. Please contact the Hogan Lovells Government Price Reporting Team if you have any questions or concerns.



Authored by Alice Valder Curran, Ken Choe, Kathleen A. Peterson, Samantha D. Marshall, Mahmud Brifkani, and Abdie Santiago

Alice Valder Curran
Washington, D.C.
Ken Choe
Washington, D.C.
Kathleen Peterson
Washington, D.C.
Samantha Marshall
Washington, D.C.
Mahmud Brifkani
Washington, D.C.


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