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Frequently Asked Questions

Frequently Asked Questions are used to provide additional information and/or statutory guidance not found in State Medicaid Director Letters, State Health Official Letters, or CMCS Informational Bulletins. The different sets of FAQs as originally released can be accessed below.

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Can CMS clarify its expectation when it comes to a situation where a labeler may have two different NDC-9s (that is not an authorized generic situation) that are the exact same drug (for example if an old labeler code is being terminated and replaced with a new labeler code)? Should the manufacturer calculate the two NDC-9s separately or merge the data together for one price across both NDC-9s?

CMS does not require that two separate NDC-9s be blended, however, the agency believes that in certain circumstances, a manufacturer may blend the AMPs of two NDC-9. For example, if a manufacturer acquires a product from a different labeler and has made necessary arrangements with the prior manufacturer, it may have product with the old labeler code (ex. 12345) as well as product from its own labeler code (ex. 67890) in the market at the same time while the supply of the drug under the old labeler code is depleted. Since the two NDC-9s are essentially the same product/strength combination, it may be reasonable to blend the AMPs and report the same AMP for both NDCs. As always, it is recommended that manufacturers retain written documentation of any reasonable assumptions made in the calculation of AMP. Manufacturers may contact CMS for further guidance and discussion as the facts and circumstances of each case should be evaluated independently.

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FAQ ID:94791

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By lowest price available for Best Price, do you mean the lowest price offered or the lowest price achieved?

The lowest price available means it is the lowest price available to the best price eligible entity. The best price must include applicable discounts, rebates, or other transactions that adjust prices either directly or indirectly to the best price eligible entities. See 42 CFR 447.505(b) and section 1927(c) of the Act.

We have provided the following example:

If a manufacturer sells a drug to a hospital but also provides a rebate to a PBM (which is excluded from best price); however, the PBM rebate is designed to subsequently adjust the drug price available from the manufacturer to the hospital (the best price eligible entity), the rebate or discount is included in the best price (see 42 CFR 447.505(c)(17)).

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FAQ ID:94796

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Can CMS please confirm that inpatient prices provided to 340B eligible children's hospitals, critical access hospitals, rural referral centers, sole community hospitals, and freestanding cancer hospitals may be excluded from AMP and Best Price?

As discussed in the final rule, any prices provided by manufacturers to 340B covered entities are excluded from AMP and best price. This would include inpatient manufacturer prices provided to children's hospitals, critical access hospitals, rural referral centers, sole community hospitals, and freestanding cancer hospitals, where those entities qualify as 340B entities as described in regulation (see 81 FR 5253, 5257-5258).

For specific questions regarding whether a covered entity meets the definition of covered entity as described in section 340B(a)(4) of the Public Health Service Act, please contact the Health Resources and Services Administration (HRSA) at 340Bpricing@hrsa.gov

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FAQ ID:94801

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Are nominal price sales to non-profit family planning clinics that do not qualify as 340B covered entities exempt from a manufacturers' Best Price?

Yes, to the extent they meet the requirements defined in the final regulation at 42 CFR 447.508(a)(4) and (5). This section of the regulation provides that nominal price sales to entities would be excluded from best price when purchased by an entity that is:

  • Described in section 501(c)(3) of the Internal Revenue Code (IRC) of 1986 and exempt from tax under section 501(a) of that Act or is State-owned or Operated; and,
  • Providing the same services to the same type of population as a covered entity described in 340B(a)(4) of the Public Health Service Act, but does not receive Federal funding under a provision of law referred in such section.

To determine whether an entity is ""non-profit or charitable organization"" under 501(c)(3) of the Internal Revenue Code (IRC), the IRS has an on-line tool and manufacturers can access that tool at https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations. As specified in the final rule, using this readily available information, manufacturers may make certain reasonable assumptions, in the absence of specific guidance, in their determinations of whether an entity is a non-profit or charitable organization, provided those reasonable assumptions are consistent with the requirements and intent of section 1927 of the Act and federal regulations(81 FR 5226).

The second prong of the regulation provides that the entity must provide services similar to 340B entities listed at 340B(a)(4) but do not receive Federal funding under this section of the law. The entities listed at www.hrsa.gov/opa/eligibility-and-registration/index.html include Title X Family planning clinics and sexually transmitted disease clinics. Therefore, to the extent non-profit family planning clinics provide the same types of services as Title X Family Planning clinics and/or sexually transmitted disease clinics, the nominal price sales to these entities would be exempt.

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FAQ ID:94806

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If a manufacturer markets both the branded drug and the AG version (in essence the same drug but marketed under two different NDCs) should the manufacturer blend sales and discounts of the branded drug and AG drug to result in a single AMP that would be reported for both the branded drug and AG drug? Further, can you please confirm that such a manufacturer should calculate Best Price as the lowest price between the branded drug and AG drug, and that lowest price for either would apply to both the branded an

Section 1927(k)(1)(C) of the Act requires that in the case of a manufacturer that approves, allows, or otherwise permits any drug of the manufacturer to be sold under a new drug application (NDA) approved under section 505(c) of Federal Food, Drug and Cosmetic Act (FFDCA), AMP shall be inclusive of the average price paid for such drug by wholesalers for drugs distributed to retail community pharmacies. Therefore, as stated in a comment and response in the final rule, when a manufacturer is selling two versions of a product (both the AG and the brand) under the same NDA, in such cases the price of the drug would be blended for AMP, even if the manufacturer distinguishes the two products using different NDCs (81 FR 5260). Furthermore, as discussed in the final rule (81 FR 5260), CMS does not believe the manufacturer should determine a separate best price for each NDC simply because the two manufacturers of the same company identify the same drug using different NDCs.

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FAQ ID:94811

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In the case when two manufacturers sell the same product under different NDCs, but the manufacturers are part of the same parent company, CMS indicated that the same Best Price should be reported for both NDCs. Under these circumstances, would the transfer sales be included in the AMP or would the transfer sales to the AG not be included in the AMP calculation?

Regulations at 42 CFR 447.506(c) indicate that a primary manufacturer holding the NDA must include the best price of an authorized generic drug in its computation of best price for a single source or an innovator multiple source drug during a rebate period to any manufacturer, wholesaler, retailer, provider, HMO, non-profit entity, or governmental entity in the United States, only when such drugs are being sold by the manufacturer holding the NDA.

Transfer sales that take place between two manufacturers would be included in AMP only to the extent the secondary manufacturer is acting as a wholesaler in accordance with section 1927(k)(11) of the Act.

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FAQ ID:94816

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Must distribution service fees, inventory management fees and the other services referenced in the BFSF provision of the AMP definition be subjected to the regulatory BFSF test? The preamble could be read to suggest that these fees are always BFSFs without analysis under the regulatory test.

Even though there were specific examples of bona find service fees provided in statute, the four-part test remains the definitive test to qualify a payment as a bona fide service fee. Therefore, manufacturers are responsible for meeting all four parts of the definition of bona fide service fee before a fee can qualify as a bona fide service fee (see 81 FR 5177-5178).

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FAQ ID:94821

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Could you please confirm that manufacturers must use the alternative methodology in their Unit Rebate Amount (URA) calculations for quarters beginning January 1, 2010 for line extension drugs that were on the market as of that date, regardless of the approval date? For manufacturers of such drugs that have been waiting for the final rule before adjusting their rebates back to 1Q 2010, will CMS set up any special process for these retroactive rebate adjustments?

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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FAQ ID:94826

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When calculating the alternative rebate for a line extension drug, must the labeler consider the highest additional rebate ratio ever incurred for an initial drug, or is the highest additional rebate ratio determined by the ratio for the current quarter only?

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

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Can you confirm that manufacturers of extended release formulations will have to calculate the alternative line extension AMP starting April 1, 2016, since extended release formulations are specifically mentioned in the statutory language that established the alternative line extension formula?

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

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