The Centers for Medicare & Medicaid Service (CMS) has issued regulations to address revised statutory requirements related to manufacturer calculation of Medicaid drug rebates.  Specifically, CMS recently published an interim final rule with comment period that revises the regulatory text at 42 CFR § 447.509(a)(4) to reflect Bipartisan Budget Act (BBA) of 2018 language revising the rebate calculation for line extension drugs.  CMS notes that the BBA of 2018 provisions are self-implementing and apply to rebate periods beginning on or after October 1, 2018.  CMS is “exercising no discretion in this interim final rule with comment period,” and emphasizes that the regulatory language “is intended solely to ensure there is no confusion as to the rebate calculations that apply for such drugs for rebate periods beginning on or after October 1, 2018, as required by statute.”  CMS will accept comments on the interim final rule until May 31, 2019.

In the same document, CMS adopts a final rule that responds to comments the agency solicited in a February 1, 2016 covered outpatient drug (COD) final rule with comment period regarding the definition and identification of line extension drugs.  After the additional comment period closed, Congress passed the Comprehensive Addiction and Recovery Act of 2016, which exempts certain abuse-deterrent formulations from the definition of line extension for purposes of the Medicaid drug rebate program, so the public comments “were not informed by the current statutory framework.”  CMS therefore is not finalizing a definition of line extension in this rulemaking; instead, CMS is “reiterating guidance provided in the COD final rule that manufacturers are to rely on the statutory definition of line extension at section 1927(c)(2)(C) of the Act, and where appropriate are permitted to use reasonable assumptions in their determination of whether their drug qualifies as a line extension drug.”  If CMS decides to develop a regulatory definition of line extension drug in the future, the agency will issue a proposed rule.

In the Regulatory Impact Analysis accompanying the rulemaking, CMS provides an updated estimate of the expected fiscal effect of the BBA of 2018 line extension drug provision on rebates paid by manufacturers to the federal government.  While the Congressional Budget Office (CBO) initially estimated that the revised line extension rebate calculation would save about $5.7 billion over 10 years, using more current data CMS now estimates that the policy will save about $3.65 billion over 10 years.