Frequently Asked Questions

The statutory line extension provisions went into effect on January 1, 2010. It is the manufacturers' responsibility to identify their line extension drugs, calculate rebates, and pay the states consistent with the statute as of this effective date, regardless of the approval date of the drugs.

The line extension provisions that are finalized in the final rule with comment are effective prospectively as of April 1, 2016. CMS will not be setting up any special process for retroactive rebate calculations for line extension drugs; therefore, manufacturers of line extension drugs should ensure that all rebates for line extension drugs are calculated and paid appropriately to states as of January 1, 2010.

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• This FAQ was released as part of a larger set. View the full set. (PDF, 205.53 KB)

FAQ ID:94826

Effective April 1, 2016, each quarter, the labeler of the line extension drug should determine the initial brand name listed drug for its line extension drug taking into consideration which active initial drug has the highest additional rebate ratio for that quarter. Additionally, the labeler of the line extension drug needs to ensure that the NDC of the initial drug with the highest additional rebate ratio is updated in the Drug Data Reporting for Medicaid (DDR) system, as appropriate, each quarter.

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FAQ ID:94831

The requirements of the line extension provision of the final rule are effective as of the effective date of the final rule (April 1, 2016).

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FAQ ID:94836

A manufacturer's recalculation of its ACA Base Date AMP value can be reported any time during the four quarters allowable period per the final rule with comment beginning 2Q 2016.

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FAQ ID:94841

In accordance with regulations at 42 CFR 447.510(d)(2), monthly AMP is calculated based on a weighted average of prices for all the manufacturer's package sizes (NDC 11) of each covered outpatient drug sold by the manufacturer during a month. It is calculated as the net sales divided by the number of units sold, excluding goods or any other items specifically excluded in statute or regulation. In accordance with the requirements of 42 CFR 447.510(d)(2)(iii) the smoothing of lagged price concessions occurs at the NDC-9 level as part of the monthly AMP calculation.

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FAQ ID:94846

CMS has previously provided guidance regarding the reporting of zero or negative AMP in Manufacturer Release #80 (January 5, 2010) in which we specify that if a calculated monthly AMP is zero or negative, we recommend that manufacturers report the most recent prior month's positive AMP. However, the actual calculated monthly AMP should be used to calculate the quarterly AMP. If the quarterly AMP is zero or negative, we recommend that manufacturers report the most recent positive AMP value. Please see Manufacturer Release #80: https://www.medicaid.gov/Medicaid-CHIP-Program-Information/ByTopics/Benefits/Prescription-Drugs/Downloads/Rx-Releases/MFR-Releases/mfr-rel-080.pdf. (PDF, 127.6 KB)

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FAQ ID:94851

The final rule does not require that a drug manufacturer sell its drugs to certain purchasers.

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FAQ ID:94856

Given the one year delay in the effective date of the definitions of states and United States, manufacturers should begin using sales data in their smoothing process beginning with sales that occur as of April 1, 2017.

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FAQ ID:94861

Section 1902(a) (25) (I) of the Act defines ""health insurers"" to include self-insured plans, group health plans (as defined in section Medicaid Management Information Systems (MMIS)(l) of the Employee Retirement Income Security Act of 1974 (ERISA)), service benefit plans, managed care organizations (MCOs), pharmacy benefit managers (PBMs), and ""other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service."" Workers' compensation, automobile insurance, and liability insurance plans all are included within the definition of ""health insurer"" for purposes of this section and the requisite state laws which must be enacted pursuant to it.

The CMS interprets ""other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim"" to include:

1. Prepaid Inpatient Health Plans (PIHPs) and Prepaid Ambulatory Health Plans (PAHPs). For purposes of Medicaid managed care, PIHPs and PAHPs are entities that contract with the state to deliver Medicaid-covered services; in that context, they would also be considered ""other parties that are, by contract, legally responsible for payment of a claim for a health care item or service;"" and,
2. Such entities as third party administrators (TPAs), fiscal intermediaries, and managed care contractors, which administer benefits on behalf of the riskbearing plan sponsor (e.g., an employer with a self-insured health plan). CMS recognizes that entities such as PBMs and TPAs do not necessarily have ultimate financial liability, but, to the extent that they are required, by contract or otherwise, to review claims and authorize payment by the plan sponsor, they are included within the definition of ""third party"" and ""health insurer"" for purposes of section 1902(a) (25) of the Act.

Nothing in revisions to the Social Security Act made by the Deficit Reduction Act of 2005 (DRA) imposes new liability to pay claims on entities that do not otherwise bear such liability. Nor does section 1902(a) (25) of the Act negate any right of indemnification against a plan sponsor or other entity with ultimate liability for health care claims by a contracting party that pays the claims.

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FAQ ID:94021

Indemnity policies may be considered third party resources if the policies meet certain criteria. Federal Medicaid regulations at 42 CFR 433.136 define a third party as ""any individual, entity, or program that is or may be liable to pay all or part of the expenditures for medical assistance furnished under a state plan."" This includes private insurance. Section 433.136 also defines private insurer to include ""any commercial insurance company offering health or casualty insurance to individuals or groups (including both experience-related insurance contracts and indemnity contracts)."" Private insurers are required to comply with the Deficit Reduction Act of 2005 (DRA) and related state enactments.

Indemnity plans may include a variety of insurance policies such as accident, cancer/specified disease, dental, hospital confinement indemnity, hospital confinement sickness indemnity, hospital intensive care, long-term care, short-term disability, specified health event, and vision. An individualized review of the various policy terms would be necessary to determine if they should be considered a third party resource for purposes of Medicaid. If this review determines that the policy provides for payment of health care items and services, the policy is a third party resource and payments would be assigned to the Medicaid agency.

An indemnity policy may be designed to pay a cash benefit to policyholders, unless the policyholder chooses otherwise. The policy may state that these payments may be used to cover medical expenses or living expenses such as rent, child care, or groceries. However, the insurance company may condition payment upon the occurrence of a medical event. Whenever payments are linked to specific medical events, these payments should be considered third party payments. Thus, the state could seek to recover Medicaid payments from the policy benefits.

Where indemnity policies do not qualify as a third party resource, any payments made to a Medicaid beneficiary may be countable as income for Medicaid eligibility purposes.

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• This FAQ was released as part of a larger set. View the full set. (PDF, 252.32 KB) 

FAQ ID:94026