The Medicaid rebate statute3 requires drug manufacturers, as a condition of federal funding for Medicaid coverage of their products, to pay rebates to state Medicaid programs with respect to “covered outpatient drugs” reimbursed by the states. For brand drugs, the amount of the rebate is based in part on the greater of (i) 23.1 percent of the drug’s “average manufacturer price” or (ii) the difference between the manufacturer’s “average manufacturer price” for a drug and its “best price” for a drug. The Medicaid statute generally defines the “best price” as “the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity within the United States.”4 Historically, CMS regulations provided that sales to patients did not affect best price, and that various forms of manufacturer patient support did not affect best price as long as the amounts were passed through to the patient and did not represent discounts to best price-eligible purchasers.5
In recent years, manufacturer patient support programs have expanded the amount of available patient cost sharing assistance for deductibles, copayments, coinsurance, or other uncovered amounts, especially with respect to specialty drugs. From the manufacturers’ perspective, these amounts help facilitate patients’ access to needed and emerging new therapies. Payors, on the other hand, have criticized such support as sustaining higher product prices and potentially undercutting the utilization management incentives inherent in cost sharing benefit designs.
In response to these concerns, many payors have adopted “accumulator” programs and other similar mechanisms as part of their benefit designs. Under an accumulator program, payors identify deductible or out-of-pocket maximum amounts paid on behalf of patients by manufacturers, but do not count those amounts toward the patient’s satisfaction of their deductible or out-of-pocket maximum. As a result, while the patient may be able to initiate therapy due to manufacturer support, when that support is exhausted, they still owe their full deductible, and the insurer’s obligation to pay benefits is effectively deferred. Manufacturers have criticized accumulator programs as inappropriate cost shifting that raises the risk that patients may discontinue therapeutic regimens.
In December 2020, CMS amended its best price regulations to require that manufacturers “ensure” that all manufacturer support under coupon or copay assistance programs is passed through to the patient, “and the pharmacy, agent, or other entity does not receive any price concession,” in order for such amounts to be excluded from the calculation of best price.6 In the preamble to that rule, CMS explicitly indicated that amounts “captured” under accumulator programs would be viewed as benefits to “best price-eligible entities” (health plans), and would therefore reduce the manufacturer’s best price.7 CMS deferred application of the rule until January 1, 2023, in the expectation that manufacturers would be able to obtain information from plans concerning accumulator programs so as to facilitate compliance with the rule. PhRMA challenged this rule under the APA in May 2021, on the ground that the agency lacked statutory authority to treat patient support as concessions affecting best price.
The district court’s decision
Following an earlier decision that PhRMA had standing to bring its challenge,8 the district court turned to the parties’ cross-motions for summary judgment. First, the court addressed a renewed standing challenge by the government. Specifically, the government argued that the 2020 accumulator rule did not “cause” manufacturer injuries for standing purposes because the agency’s earlier 2007 and 2016 rules already dictated the same result. The court rejected that argument, noting (i) that the new regulatory language requiring manufacturers to “ensure” that patients realized the full value of assistance clearly imposed affirmative obligations on manufacturers, and (ii) that CMS itself had recognized that the rule imposed new obligations vis-à-vis accumulators when it deferred the effective date of the rule until 2023.
Second, turning to the merits, the court analyzed the 2020 rule under the standard established in Chevron USA, Inc. v. Natural Resources Defense Council.9 Under “step one” of Chevron, courts first evaluate whether the statute has unambiguously addressed the issue, and if so, courts must strike down regulations that are inconsistent with the statute. Here, the district court initially recognized that patients are not best price-eligible entities under the statute, and further emphasized that patient subsidies are not concessions made “to” a best price-eligible entity “from a manufacturer.” Further, the court noted, the concessions could not be viewed as indirectly made available to plans from manufacturers because manufacturers had no involvement in the accumulator programs, and in fact opposed them.
Discussion and implications
Although it remains to be seen whether CMS will file an appeal, the district court’s decision represents a significant near-term victory for manufacturers. As a practical matter, the 2020 rule offered no clear means for manufacturers to identify health plans with accumulator programs in a way that would allow them to incorporate such information into their patient support programs so as to minimize potential best price implications. And, although CMS suggested that “manual” redemption of rebates might ensure that patients realize benefits, even that mechanism (as well as comparable assistance mechanisms such as debit cards) provided no assurance that a payor would not require an insured patient to report assistance obtained through those mechanisms under an accumulator program. Thus, the 2020 rule posed substantial Medicaid rebate and 340B program discount and rebate risk to existing manufacturer assistance programs.
At the same time, it is equally important to note what the district court’s decision does not do, i.e., it does not in any way “prohibit” plans from implementing accumulator programs or related “maximizer” programs.10 Thus, while the decision may negate the potential for significant government pricing liability and allow programs to continue in their current form, manufacturer assistance programs may still be subject to payor accumulator and related programs, resulting in potential cost shifting or deferred insurance coverage for patients for the manufacturers’ products. Consequently, we expect manufacturers and payors to continue to consider their program designs, benefits, assistance mechanisms, and rebate contracting provisions in light of this dynamic.
For further information concerning these matters, or patient support programs generally, please contact one of the Reed Smith attorneys listed below.
- 85 Fed. Reg. 87000 (Dec. 31, 2020) (codified at 42 C.F.R. section 447.504).
- No. 1:21-cv-01395-CJN (D.D.C. May 17, 2022).
- 42 U.S.C. section 1396r-8. In addition, section 340B of the Public Health Service Act requires manufacturers to provide discounts to certain “covered entities” based on pricing data submitted under the Medicaid rebate program. Id. section 256b.
- 42 U.S.C. section 1396r-8(c)(1)(C)(i).
- 42 C.F.R. section 447.505(c)(8)-(12), (19) (2020).
- 85 Fed. Reg. at 87,102.
- Id. at 85,048.
- PhRMA v. Becerra, 2021 WL 5630798 (D.D.C. Dec. 1, 2021).
- 467 U.S. 834 (1984).
- Under “maximizer” programs, plans increase the cost sharing obligation for certain prescription drugs to amounts calculated to equal the maximum amount available under the manufacturer’s assistance program for the given drug, enroll patients in the manufacturer’s program, and apply the assistance evenly through the plan year to the patient’s cost sharing obligations. Thus, while patients realize the benefit of manufacturer assistance in that it is counted toward cost sharing obligations under a maximizer program, the program often has the effect of shifting product costs from the insurer to the manufacturer as a result of relatively higher cost sharing obligations.