Section 447.509 - [Effective 11/19/2024] Medicaid drug rebates (MDR)(a)Determination of rebate amount - (1)Basic rebate for single source drugs and innovator multiple source drugs. The amount of basic rebate for each dosage form and strength of a single source drug or an innovator multiple source drug is equal to the product of: (i) The total number of units of each dosage form and strength paid for under the State plan in the rebate period (as reported by the State); and(ii) The greater of:(A) The difference between the AMP and the best price for the dosage form and strength of the drug; or(B) The AMP for the dosage form and strength of the drug multiplied by one of the following percentages: (1) For a clotting factor, 17.1 percent;(2) For a drug approved by FDA exclusively for pediatric indications, 17.1 percent; or(3) For all other single source drugs and innovator multiple source drugs, 23.1 percent.(2)Additional rebate for single source and innovator multiple source drugs. In addition to the basic rebate described in paragraph (a)(1) of this section, for each dosage form and strength of a single source drug or an innovator multiple source drug, the rebate amount will be increased by an amount equal to the product of the following:(i) The total number of units of such dosage form and strength paid for under the State plan in the rebate period.(ii) The amount, if any, by which:(A) The AMP for the dosage form and strength of the drug for the period exceeds:(B) The base date AMP for such dosage form and strength, increased by the percentage by which the consumer price index for all urban consumers (United States city average) for the month before the month in which the rebate period begins exceeds such index associated with the base date AMP of the drug.(3)Total rebate. The total rebate amount for single source drugs and innovator multiple source drugs is equal to the basic rebate amount plus the additional rebate amount, if any.(4)Treatment of new formulations.(i) In the case of a drug that is a line extension of a single source drug or an innovator multiple source drug that is an oral solid dosage form, the rebate obligation for the rebate periods beginning January 1, 2010 through September 30, 2018 is the amount computed under paragraphs (a)(1) through (3) of this section for such new drug or, if greater, the product of all of the following: (A) The AMP of the line extension of a single source drug or an innovator multiple source drug that is an oral solid dosage form.(B) The highest additional rebate (calculated as a percentage of AMP) under this section for any strength of the original single source drug or innovator multiple source drug.(C) The total number of units of each dosage form and strength of the line extension product paid for under the State plan in the rebate period (as reported by the State).(ii) In the case of a drug that is a line extension of a single source drug or an innovator multiple source drug that is an oral solid dosage form, the rebate obligation for the rebate periods beginning on October 1, 2018 through December 31, 2021 is the amount computed under paragraphs (a)(1) through (3) of this section for such new drug or, if greater, the amount computed under paragraph (a)(1) of this section plus the product of all of the following:(A) The AMP of the line extension of a single source drug or an innovator multiple source drug that is an oral solid dosage form.(B) The highest additional rebate (calculated as a percentage of AMP) under this section for any strength of the original single source drug or innovator multiple source drug.(C) The total number of units of each dosage form and strength of the line extension product paid for under the State plan in the rebate period (as reported by the State).(iii) In the case of a drug that is a line extension of a single source drug or an innovator multiple source drug, provided that the initial single source drug or innovator multiple source drug is an oral solid dosage form, the rebate obligation for the rebate periods beginning on and after January 1, 2022 is the amount computed under paragraphs (a)(1) through (3) of this section for such new drug or, if greater, the amount computed under paragraph (a)(1) of this section plus the product of all of the following:(A) The AMP of the line extension of a single source drug or an innovator multiple source drug.(B) The highest additional rebate (calculated as a percentage of AMP) under this section for any strength of the original single source drug or innovator multiple source drug.(C) The total number of units of each dosage form and strength of the line extension product paid for under the State plan in the rebate period (as reported by the State).(iv) The alternative rebate is required to be calculated if the manufacturer of the line extension drug also manufactures the initial brand name listed drug or has a corporate relationship with the manufacturer of the initial brand name listed drug.(5)Limit on rebate. For a rebate period beginning after December 31, 2009, and before January 1, 2024, in no case will the total rebate amount exceed 100 percent of the AMP of the single source or innovator multiple source drug.(6)Rebate for drugs other than a single source drug or innovator multiple source drug. The amount of the basic rebate for each dosage form and strength of a drug other than a single source drug or innovator multiple source drug will be equal to the product of:(i) The total number of units of such dosage form and strength for which payment was made under the State plan for the rebate period; and(ii) The AMP for the dosage form and strength for the rebate period multiplied by 13 percent.(7)Additional rebate for drugs other than a single source drug or innovator multiple source drug. In addition to the basic rebate described in paragraph (a)(6) of this section, for each dosage form and strength of a drug other than a single source drug or innovator multiple source drug, the rebate amount will be increased by an amount equal to the product of the following:(i) The total number of units of such dosage form and strength paid for under the State plan in the rebate period.(ii) The amount, if any, by which:(A) The AMP for the dosage form and strength of the drug for the period exceeds the base date AMP for such dosage form and strength, increased by the percentage by which the consumer price index for all urban consumers (United States city average) for the month before the month in which the rebate period begins exceeds such index associated with the base date AMP of the drug.(B) The base date AMP has the meaning of AMP set forth in sections 1927(c)(2)(A)(ii)(II), 1927(c)(2)(B) and 1927(c)(3)(C) of the Act.(8)Total rebate. The total rebate amount for a drug other than a single source drug or innovator multiple source drug is equal to the basic rebate amount plus the additional rebate amount, if any.(9)Limit on rebate. For a rebate period beginning after December 31, 2014, and before January 1, 2024, in no case will the total rebate amount exceed 100 percent of the AMP for a drug other than a single source drug or innovator multiple source drug.(b)Rebates for drugs dispensed through Medicaid managed care organizations (MCOs).(1) Manufacturers participating in the Medicaid drug rebate program will provide a rebate for covered outpatient drugs dispensed to individuals enrolled in Medicaid MCOs if the MCO is contractually required to provide such drugs.(2) Manufacturers are exempt from the requirement in paragraph (b)(1) of this section if such drugs are the following:(i) Dispensed by health maintenance organizations including MCOs that contract under section 1903(m) of the Act; and(ii) Discounted under section 340B of the PHSA.(c)Federal offset of rebates. States must remit to the Federal government the amount of the savings resulting from the following increases in the rebate percentages. (1) For single source or innovator multiple source drugs other than blood clotting factors and drugs approved by FDA exclusively for pediatric indications:(i) If AMP minus best price is less than or equal to AMP times 15.1 percent, then the offset amount is the full 8.0 percent of AMP (the difference between 23.1 percent of AMP and 15.1 percent of AMP).(ii) If AMP minus best price is greater than AMP times 15.1 percent but less than AMP times 23.1 percent, then the offset amount is the difference between AMP times 23.1 percent and AMP minus best price.(iii) If AMP minus best price is equal to or greater than AMP times 23.1 percent, then there is no offset amount.(2) For single source or innovator multiple source drugs that are clotting factors and drugs approved by FDA exclusively for pediatric indications that are subject to a rebate percentage of 17.1 percent of AMP:(i) If AMP minus best price is less than or equal to AMP times 15.1 percent, then the offset amount is the full 2.0 percent of AMP (the difference between 17.1 percent of AMP and 15.1 percent of AMP).(ii) If AMP minus best price is greater than AMP times 15.1 percent but less than AMP times 17.1 percent, then the offset amount is the difference between AMP times 17.1 percent and AMP minus best price.(iii) If AMP minus best price is equal to or greater than AMP times 17.1 percent, then there is no offset amount.(3) For a drug that is a line extension of a single source or innovator multiple source drug that is an oral solid dosage form, the offset amount is the difference between the unit rebate amount (URA) calculation for the drug calculated based on the applicable rebate percentage in section 1927 of the Act prior to the Affordable Care Act and the calculation of the URA for the line extension drug, if greater, in accordance with the Affordable Care Act.(4) For a drug other than a single source drug or innovator multiple source drug, the offset amount is equal to 2.0 percent of the AMP (the difference between 13.0 percent of AMP and 11.0 percent of AMP).(d)Manufacturer misclassification of a covered outpatient drug and recovery of unpaid rebate amounts due to the misclassification and other penalties -(1)Definition of misclassification. A misclassification in the MDRP has occurred when a manufacturer has:(i) Reported and certified to the agency its drug category or drug product information related to a covered outpatient drug that is not supported by the statute and applicable regulations; or,(ii) Reported and certified to the agency its drug category or drug product information that is supported by the statute and applicable regulations, but pays rebates to States at a level other than that associated with that classification.(2)Manufacturer notification by the agency of drug misclassification. If the agency determines that a misclassification has occurred as described in paragraph (d)(1) of this section, the agency will send written and electronic notification of this misclassification to the manufacturer of the covered outpatient drug, which may include a notification that past rebates are due. The manufacturer has 30 calendar days from the date of notification to: (i) Provide the agency such drug product and drug pricing information needed to correct the misclassification of the covered outpatient drug and calculate rebate obligations due, if any, pursuant to paragraph (d)(3) of this section. The required pricing data submitted by the manufacturer to the agency shall include the best price information for the covered outpatient drug, if applicable, for the rebate periods for which the manufacturer misclassified the covered outpatient drug; and,(ii) Certify applicable price and drug product data after entered into the system by the agency.(3)Manufacturer payment of unpaid rebates due to misclassification determined by agency.(i) When the agency has determined that a manufacturer has misclassified a covered outpatient drug as described in paragraph (d)(1) of this section, such that rebates are owed to the States, and notification has been provided to the manufacturer as provided under paragraph (d)(2) of this section, a manufacturer must pay to each State an amount equal to the sum of the products of:(A) The difference between:(1) The per URA paid by the manufacturer for the covered outpatient drug to the State for a period during which the drug was misclassified; and(2) The per URA that the manufacturer would have paid to the State for the covered outpatient drug for each period, as determined by the agency based on the data provided and certified by the manufacturer under paragraph (d)(2) of this section, if the drug had been correctly classified by the manufacturer; and,(B) The total units of the drug paid for under the State plan in each period.(ii) Manufacturers must pay such rebates to the States for the period or periods of time that such covered outpatient drug was misclassified, based on the formula described in this section, within 60 calendar days of notification by the agency to the manufacturer of the misclassification, and provide documentation to the agency that the States were contacted by the manufacturer, and that such payments were made to the States within the 60 calendar days.(4)Agency authority to correct misclassifications and additional penalties for drug misclassification. The agency will review the information submitted by the manufacturer based on the notice sent under paragraph (d)(2) of this section. If a manufacturer fails to comply with paragraph (d)(2) of this section within 30 calendar days from the date of the notification by the agency of the misclassification to the manufacturer under paragraph (d)(1) of this section, fails to pay the rebates that are due to the States as a result of the misclassification within 60 calendar days from the date of the notification, if applicable, and/or fails to provide to the agency such documentation that such rebates have been paid, as described in paragraph (d)(3) of this section, the agency may do any or all of the following:(i) Correct the misclassification of the drug in the system on behalf of the manufacturer, using any pricing and drug product information that may have been provided by the manufacturer. In such case, the manufacturer must certify the applicable correction within 30 calendar days.(ii) Suspend the misclassified drug and the drug's status as a covered outpatient drug under the manufacturer's rebate agreement from the MDRP, and exclude the misclassified drug from FFP in accordance with section 1903(i)(10)(E) of the Act.(iii) Impose a civil monetary penalty (CMP) for each rebate period during which the drug is misclassified, not to exceed an amount equal to the product of:(A) The total number of units of each dosage form and strength of such misclassified drug paid for under any State plan during such a rebate period; and(B) 23.1 percent of the AMP for the dosage form and strength of such misclassified drug for that period.(iv) Other actions and penalties available under section 1927 of the Act (or any other provision of law), including referral to the HHS Office of the Inspector General and termination from the MDRP.(5)Transparency of manufacturers' drug misclassifications. The agency will make available on a public website an annual report as required under section 1927(c)(4)(C)(ii) of the Act on the covered outpatient drug(s) that were identified as misclassified during the previous year, any steps taken by the agency with respect to the manufacturer to reclassify the drugs and ensure the payment by the manufacturer of unpaid rebate amounts resulting from the misclassifications, and a disclosure of the expenditures from the fund created in section 1927(b)(3)(C)(iv) of the Act.81 FR 5347, Feb. 1, 2016, as amended at 84 FR 12136, Apr. 1, 2019; 85 FR 87103, Dec. 31, 2020 81 FR 5347, 2/1/2016; as amended at 84 FR 12136, 4/1/2019; 85 FR 87103, 3/1/2021; 85 FR 87103, 1/1/2022; 89 FR 79083, 11/19/2024