Medicare Program; Contract Year 2027 and Certain Contract Year 2026 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, and Medicare Cost Plan Program

The Medicare Part D Manufacturer Discount Program (Manufacturer Discount Program) was enacted into law in section 11201 of the Inflation Reduction Act of 2022, Public Law 117-169 (IRA) and codified in sections 1860D-14C and 1860D-43 of the Act. Section 11201(f) of the IRA directed the Secretary to implement the Manufacturer Discount Program by program instruction or other forms of program guidance for 2025 and 2026. In accordance with the law, on November 17, 2023, CMS released the Medicare Part D Manufacturer Discount Program Final Guidance. On December 20, 2024, we released the Revised Medicare Part D Manufacturer Discount Program Final Guidance (Manufacturer Discount Program Final Guidance).\14\

\14\ Available at: https://www.cms.gov/files/document/revised-manufacturer-discount-programfinal-guidance122024.pdf.

In the proposed rule, we proposed to codify the Manufacturer Discount Program Final Guidance, with limited refinements and changes, to be effective beginning CY 2027. Under the Manufacturer Discount Program, for applicable drugs and selected drugs to be coverable under Part D, manufacturers of such drugs are required to enter into a Manufacturer Discount Program agreement with CMS and agree to provide discounts on their applicable drugs when dispensed to Part D enrollees who are in the initial and catastrophic coverage phases of the Part D benefit. Discounts under the Manufacturer Discount Program are advanced at the point of sale by the Part D plan sponsor, and manufacturers are invoiced quarterly based on the amounts submitted by plan sponsors on Prescription Drug Event (PDE) records. CMS provides prospective payments to plan sponsors and adjusts the payments through an annual reconciliation.

Discounts under the Manufacturer Discount Program generally reduce the amount the Part D sponsor pays for the drug, and discounts are paid for all Part D enrollees who have exceeded the annual Part D deductible specified in section 1860D-2(b)(1) of the Act. Discounts are 10 percent of the negotiated price of the applicable drug in the initial coverage phase and 20 percent in the catastrophic coverage phase, and are phased in over the first several years of the program for manufacturers that meet statutory criteria for specified manufacturers and specified small manufacturers.

Many of the other policies currently in effect pursuant to the Manufacturer Discount Program Final Guidance, which we proposed to codify mirror longstanding policies under the Coverage Gap Discount Program, including use of a third party administrator (TPA) to facilitate program operations such as invoicing and payment, use of the Health Plan Management System (HPMS) to execute agreements and house data, and the manufacturer dispute resolution process. All of these policies are discussed in more detail later in this section.

Comment: We received several comments supportive of our proposal to codify existing Manufacturer Discount Program policies. Commenters appreciated that CMS implemented the Manufacturer Discount Program in a manner similar to the former Coverage Gap Discount Program.

Response: We thank the commenters for their support. We are finalizing the regulatory policies for the Manufacturer Discount Program largely as proposed, with limited modifications, which are described in greater detail below. 2. Basis and Scope (Sec. 423.2700)

We proposed to codify the requirements for the Manufacturer Discount Program under sections 1860D-14C and 1860D-43 of the Act as new subpart AA of part 423. Proposed Sec. 423.2700(a) and (b) set forth the basis and scope, respectively.

We proposed a conforming change at Sec. 423.1 to incorporate section 1860D-14C of the Act into the scope of part 423.

We received no comments on this section and we are finalizing Sec. 423.2700 as proposed. 3. Definitions (Sec. Sec. 423.100, 423.1002, and 423.2704)

We proposed to codify the definition of frequently used terms consistent with section 1860D-14C of the Act or established in the Manufacturer Discount Program Final Guidance, as well as new definitions consistent with the policies we are finalizing in this rule.

Several of these terms are also used for purposes of the Coverage Gap Discount Program. Because some of the terms are applicable to both subpart W and proposed subpart AA, we proposed to revise certain definitions in existing Sec. Sec. 423.100, 423.1002, and 423.2305, move certain definitions from Sec. 423.2305 to Sec. 423.100 with revisions as necessary to comply with relevant statutory requirements, and add new definitions for purposes of the Manufacturer Discount Program at proposed Sec. 423.2704.

At Sec. 423.100, we proposed to revise a number of existing definitions as discussed below.

“Applicable beneficiary”;

We proposed to revise the definition of “applicable beneficiary” to reflect the statutory definition of such term under the Coverage Gap Discount Program and the Manufacturer Discount Program.

“Applicable drug”;

We proposed to modify the existing definition of “applicable drug” to specify that compounded drug products (as described in Sec. 423.120(d)) containing an applicable drug are excluded from the definition. As stated in the proposed rule, this change would codify both longstanding CMS policy under the Coverage Gap Discount Program as well as policy established in section 40.1 of the Manufacturer Discount Program Final Guidance. Whereas plans may cover compounds that include at least one Part D ingredient, and that ingredient would be an applicable drug if dispensed on its own, because compounds as a whole are not approved under a New Drug Application (NDA) or Biologic Licensing Application (BLA), CMS has established that compounds do not meet the definition of an applicable drug.

For the purposes of the Manufacturer Discount Program, we proposed to clarify that “applicable drug” also includes a Part D drug that is provided to a particular applicable beneficiary as a transition fill under Sec. 423.120(b)(3) or as an emergency supply as may be required for an applicable beneficiary who is a long-term care resident. As stated in the proposed rule, this clarification would codify our longstanding approach under the Coverage Gap Discount Program where, in practice, such fills have been treated as meeting the definition of “applicable drug.”

Finally, in accordance with the statutory definition of “applicable drug” at section 1860D-14C(g)(2) of the Act and the Manufacturer Discount Program Final Guidance, we proposed to specify that, for the purposes of the Manufacturer Discount Program, an applicable drug is not a selected drug during a price applicability period with respect to such drug.

We proposed to add definitions for the following terms at Sec. 423.100:

“Applicable discount”;

We proposed to add a definition of “applicable discount” that identifies the separate programmatic definitions of such term for the Coverage Gap Discount Program and the Manufacturer Discount Program. Specifically, we proposed to define “applicable discount” as, for purposes of the Coverage Gap Discount Program, having the meaning set forth at Sec. 423.2305, and for purposes of the Manufacturer Discount Program, the meaning set forth at Sec. 423.2712.

“Applicable number of calendar days”;

We proposed to remove the definition of “applicable number of calendar days” from Sec. 423.2305 and add it at Sec. 423.100. This definition would apply to both the Coverage Gap Discount Program and the Manufacturer Discount Program.

“Date of dispensing”;

We proposed to remove the existing definition of “date of dispensing” from Sec. 423.2305 and add it, with revisions, at Sec. 423.100. Specifically, we proposed to add at the end of the definition, “For long-term care and home infusion pharmacies, the date of dispensing can be interpreted as the date the pharmacy submits the discounted claim for reimbursement.”

“Labeler code”;

We proposed to remove the existing definition of “labeler code” from Sec. 423.2305 and add it, with revisions, at Sec. 423.100. Specifically, we proposed to remove the phrase “Food and Drug Administration.”

“Manufacturer”;

We proposed to remove the existing definition of “manufacturer” from Sec. 423.2305 and add it at Sec. 423.100 with a revision removing the phrase “Discount Program” and adding in its place the phrase “Coverage Gap Discount Program and the Manufacturer Discount Program”.

“Manufacturer Discount Program”;

We proposed to define “Manufacturer Discount Program” as the Medicare Part D Manufacturer Discount Program established under section 1860D-14C of the Act.

“Manufacturer Discount Program agreement”;

We proposed to define “Manufacturer Discount Program agreement” as the

agreement described at section 1860D-14C(b) of the Act.

“Medicare Coverage Gap Discount Program”;

We proposed to remove the definition of “Medicare Coverage Gap Discount Program” from Sec. 423.2305 and add it at Sec. 423.100, with revisions to remove the phrase “Program (or Discount Program)” and add in its place the phrase “Program (or Coverage Gap Discount Program)”.

“Medicare Coverage Gap Discount Program agreement”;

We proposed to remove the definition of “Medicare Coverage Gap Discount Program agreement” from Sec. 423.2305 and add it at Sec. 423.100 with revisions to remove the phrase “Program agreement (or Discount Program agreement)” and add in its place the phrase “Program agreement (or Coverage Gap Discount Program agreement)”.

“National Drug Code (NDC)”; and

We proposed to remove the definition of “National Drug Code” from Sec. 423.2305 and add it at Sec. 423.100 with revisions to remove the phrase “the product” and add in its place the phrase “the product's manufacturer, product”.

“Non-applicable drug”;

We proposed to define “non-applicable drug” to mean any Part D drug that is not an applicable drug and not a selected drug during a price applicability period with respect to such drug.

“Price applicability period”;

We proposed to define “price applicability period” as having the meaning given such term in section 1191(b)(2) of the Act and any applicable regulations and guidance.

“Selected drug”; and

We proposed to define “selected drug” as having the meaning given such term in section 1192(c) of the Act and any applicable regulations and guidance.

“Third Party Administrator (TPA)”.

We proposed to add at Sec. 423.100 the definition of “Third Party Administrator” that we proposed to remove from Sec. 423.2305, with revisions. Specifically, we proposed to remove the phrase “section 1860D-14A of the Act” and add in its place the phrase “sections 1860D-14A and 1860D-14C of the Act”.

At Sec. 423.1002, we proposed to revise the existing definition of “affected party” to account for the definition of “manufacturer” under the Coverage Gap Discount Program and the definition of “agreement holder” under the Manufacturer Discount Program. Specifically, we proposed that affected party means any Part D sponsor or, for purposes of the Coverage Gap Discount Program, any manufacturer (as defined in Sec. 423.100), or, for purposes of the Manufacturer Discount Program, any manufacturer that is an agreement holder (as defined in Sec. 423.2704), impacted by an initial determination or, if applicable, by a subsequent determination or decision issued under this part, and “party” means the affected party or CMS, as appropriate.

We proposed to remove the following definitions from Sec. 423.2305 because, as noted previously, we proposed to add definitions for such terms at Sec. 423.100, for purposes of incorporating the Manufacturer Discount Program:

“Applicable number of calendar days”;

“Date of dispensing”;

“Labeler code”;

“Manufacturer”;

“Medicare Coverage Gap Discount Program”;

“Medicare Coverage Gap Discount Program Agreement”;

“National Drug Code (NDC)”; and

“Third Party Administrator (TPA)”.

At Sec. 423.2704, we proposed to define the following terms for purposes of proposed subpart AA and the Manufacturer Discount Program:

“Agreement holder”;

We proposed to define “agreement holder” as a manufacturer that has executed and has in effect its own Manufacturer Discount Program agreement in accordance with Sec. 423.2708(b)(1).

“Applicable discount”;

We proposed to define “applicable discount” as having the meaning set forth at Sec. 423.2712.

“Applicable LIS percent”;

We proposed to define “applicable LIS percent” as having the meaning set forth at Sec. 423.2712(d)(1).

“Applicable small manufacturer percent”;

We proposed to define “applicable small manufacturer percent” as having the meaning set forth at Sec. 423.2712(d)(2).

“Covered Part D drug”;

We proposed to define “covered Part D drug” as having the meaning set forth at Sec. 423.100.

“Dispute submission deadline”;

We proposed to define “dispute submission deadline” as the date that is 60 calendar days from the date of the invoice containing the information that is the subject of the agreement holder's dispute.

“Negotiated price”;

We proposed to define “negotiated price” as having the meaning set forth at Sec. 423.100, and with respect to an applicable drug under the Manufacturer Discount Program, the negotiated price includes any dispensing fee and, if applicable, any vaccine administration fee and sales tax.

“Network pharmacy”;

We proposed to define “network pharmacy” as having the meaning set forth at Sec. 423.100.

“Part D drug”;

We proposed to define “Part D drug” as having the meaning set forth at Sec. 423.100.

“Primary manufacturer”;

We proposed to define “primary manufacturer” as having the meaning given such term pursuant to applicable regulations and guidance for the Medicare Drug Price Negotiation Program.

“Specified drug”;

We proposed to define “specified drug” as meaning, with respect to a specified manufacturer, for 2021, an applicable drug that is produced, prepared, propagated, compounded, converted, or processed by the specified manufacturer.

“Specified small manufacturer drug”; and

We proposed to define “specified small manufacturer drug” as meaning, with respect to a specified small manufacturer, for 2021, an applicable drug that is produced, prepared, propagated, compounded, converted, or processed by the specified small manufacturer.

“Total expenditures”.

We proposed to define “total expenditures” as meaning, with respect to Part D, the total gross covered prescription drug costs, as defined in Sec. 423.308; and as meaning, with respect to Part B, the total Medicare allowed amount (that is, total allowed charges), inclusive of beneficiary cost sharing, for Part B drugs and biologicals, except that expenditures for a drug or biological that are bundled or packaged into the payment for another service are excluded.

Comment: We received a few comments regarding our proposed definitions, specifically in support of our proposed definitions of “applicable drug” and “date of dispensing.” Both commenters noted that the proposed definitions will provide clarity for stakeholders, including plans, pharmacies, enrollees, and manufacturers. A commenter applauded CMS's recognition that transition fills and emergency supplies are “applicable drugs” and may be necessary for long term care residents to ensure uninterrupted access to medications that can be lifesaving. Another commenter appreciated CMS ensuring that definitions are consistent across the agency's guidance documents, policies, and programs.

Response: We thank the commenters for their support and are finalizing the proposals discussed in this section without modification our proposed definitions at Sec. Sec. 423.100, 423.1002, 423.2305, and 423.2704. 4. Conditions for Coverage of Drugs Under Part D (Sec. 423.2708)

Section 1860D-43(a) of the Act, as amended by the IRA, specifies that, beginning January 1, 2025, in order for Part D coverage to be available for the covered Part D drugs of a manufacturer, the manufacturer must participate in the Manufacturer Discount Program and have entered into and have in effect a Manufacturer Discount Program agreement with CMS, as described in section 1860D-14C(b) of the Act. Operationally, coverage of a drug under a Manufacturer Discount Program agreement is determined by coverage of its labeler code (as defined at Sec. 423.100) under such agreement.

Any Part D drug that is a selected drug during a price applicability period with respect to such drug, is excluded from the definition of applicable drug under section 1860D-14C(g)(2)(B) of the Act and, therefore, not subject to applicable discounts under the Manufacturer Discount Program when dispensed during a price applicability period. However, a selected drug would otherwise meet the definition of an applicable drug, but for it being in a price applicability period following its selection into the Medicare Drug Price Negotiation Program. Therefore, applying section 1860D-43(a) of the Act's coverage exclusion in the absence of a Manufacturer Discount Program agreement to both applicable drugs and selected drugs provides incentive for manufacturers of brand name drugs and biological products to participate in the Manufacturer Discount Program, while not undermining beneficiary access to generics. Moreover, this interpretation is consistent with the IRA's addition of section 1860D- 43(c)(2) of the Act, which prohibits the Secretary from authorizing coverage for a covered Part D drug of a manufacturer without a Manufacturer Discount Program agreement for any period described in section 5000D(c)(1) of the Internal Revenue Code under the exception for drugs determined to be essential to the health of Part D enrollees. This provision further demonstrates that the statute does not allow for a selected drug to be eligible for Part D coverage in the absence of a Manufacturer Discount Program agreement. As stated in section 40 of the Manufacturer Discount Program Final Guidance and consistent with the policy on applicable drugs, beginning January 1, 2025, Part D coverage for selected drugs during a price applicability period is available only for selected drugs for which the labeler code is covered by a Manufacturer Discount Program agreement with CMS, as described in section 1860D-14C(b) of the Act.

At Sec. 423.2708(a), we proposed to codify existing Manufacturer Discount Program policy that, in order for coverage to be available under Part D for a Part D drug of a manufacturer that is an applicable drug or a selected drug during a price applicability period:

The FDA-assigned labeler code of such drug must be covered under a Manufacturer Discount Program agreement that is in effect;

The manufacturer must participate in the Manufacturer Discount Program; and

The manufacturer must have entered into and have in effect a Manufacturer Discount Program agreement.

We expect each manufacturer that chooses to participate in the Manufacturer Discount Program to enter into its own Manufacturer Discount Program agreement with CMS. However, we acknowledge a longstanding practice where CMS has permitted manufacturers to cover by their Manufacturer Discount Program agreement (and previously by their Coverage Gap Discount Program agreement) labeler code(s) assigned by the FDA to another manufacturer. CMS did not propose to prohibit this practice, provided all other requirements of the Manufacturer Discount Program are met. As discussed in the preamble to the proposed rule, a manufacturer is considered to participate in the Manufacturer Discount Program and to have entered into and have in effect a Manufacturer Discount Program agreement under proposed Sec. 423.2708(a)--and thus, under section 1860D-43(a) of the Act--if such manufacturer executes and has in effect its own Manufacturer Discount Program agreement or participates by means of an arrangement whereby its labeler code(s) is covered by another manufacturer's Manufacturer Discount Program agreement that is in effect. We proposed to codify this requirement at Sec. 423.2708(b).

While a manufacturer may participate in the Manufacturer Discount Program in accordance with proposed Sec. 423.2708(b)(2), as described in more detail in section II.C.12. of this preamble, only the entity that executes an agreement pursuant to proposed Sec. 423.2708(b)(1) is an agreement holder (as defined at Sec. 423.2704). Consistent with our longstanding practice, only the agreement holder is a party to the Manufacturer Discount Program agreement with CMS, and the agreement holder is the entity subject to the rights and obligations of the Manufacturer Discount Program agreement, including the obligation to pay all invoiced amounts under such agreement.

In accordance with section 1860D-43(c)(1)(A) of the Act, we proposed to codify at Sec. 423.2708(c) that an applicable drug of a manufacturer that does not participate in the Manufacturer Discount Program or has not entered into and does not have in effect a Manufacturer Discount Program agreement under section 1860D-14C(b) of the Act is not excluded from Part D coverage if CMS has made a determination that the availability of the applicable drug is essential to the health of Part D enrollees. In addition, we proposed to codify that, as specified in section 1860D-43(c)(2) of the Act, this exception to the exclusion from Part D coverage does not apply to any applicable drug or selected drug of a manufacturer for any period described in section 5000D(c)(1) of the Internal Revenue Code of 1986 with respect to such manufacturer.

Consistent with our prior interpretation of section 1860D-43(a) of the Act under the Coverage Gap Discount Program, for purposes of the Manufacturer Discount Program, the exclusion from Part D coverage applies only to applicable drugs and selected drugs not covered by a Manufacturer Discount Program agreement that is fully executed and in effect. Coverage under Medicare Part D is available to non-applicable drugs of a manufacturer regardless of whether the manufacturer participates in the Manufacturer Discount Program or has a Manufacturer Discount Program agreement in effect.

At Sec. 423.2708(d), we proposed that non-applicable drugs, as we proposed to define the term in Sec. 423.100, will continue to be coverable under Part D whether or not the manufacturer participates in the Manufacturer Discount Program or has a Manufacturer Discount Program agreement in effect.

Comment: We received a comment on the proposals in this section. The commenter expressed concern about limitations on enrollee access to drugs of a manufacturer that does not participate in the Manufacturer Discount Program, and recommended that CMS specify criteria for making a determination that an applicable drug is essential to the health of Part D enrollees.

Response: CMS appreciates and shares the commenter's concern about

enrollee access to applicable drugs of manufacturers that choose not to participate in the Manufacturer Discount Program. However, we decline to codify specifications for the exception provision at Sec. 423.2708(c) at this time. Based on experience under the Coverage Gap Discount Program and the Manufacturer Discount Program to date, CMS does not anticipate using this exception, which has not been used to date under either program. We are concerned that proactive exemptions for certain drugs, or categories and classes of drugs, from the required conditions for Part D coverage would result in higher costs to Part D sponsors, beneficiaries, and the government because manufacturers of those drugs would have no incentive to participate in the Manufacturer Discount Program. Manufacturers should not expect to get their applicable drugs covered under Part D as a result of this exception.

CMS is finalizing the regulation text at Sec. 423.2708 without modification. 5. Applicable Discounts (Sec. 423.2712)

Under the Manufacturer Discount Program, once an enrollee incurs costs exceeding the annual deductible specified in section 1860D- 2(b)(1) of the Act, that is, the deductible under the defined standard benefit, manufacturer discounts are available in both the initial and catastrophic coverage phases of the benefit. The applicable discount lowers Part D sponsor liability on the negotiated price of the drug. a. Defined

Consistent with the definition in Sec. 423.100 that we are finalizing in this final rule, “applicable discount” means, subject to the phase-ins and the straddle claims policy described in this section, with respect to an applicable drug of a manufacturer dispensed during a year to an applicable beneficiary who has--

Not incurred costs, as determined in accordance with section 1860D-2(b)(4)(C) of the Act, for covered Part D drugs in the year that are equal to or exceed the annual out-of-pocket threshold specified in section 1860D-2(b)(4)(B)(i) of the Act for the year, 10 percent of the negotiated price of such drug; and

Incurred costs, as determined in accordance with section 1860D-2(b)(4)(C) of the Act, for covered Part D drugs in the year that are equal to or exceed the annual out-of-pocket threshold specified in section 1860D-2(b)(4)(B)(i) of the Act for the year, 20 percent of the negotiated price of such drug.

We proposed to codify this policy at Sec. 423.2712(a). Consistent with the statutory requirements and the Manufacturer Discount Program Final Guidance, the applicable discount is not available until the enrollee has incurred costs exceeding the annual deductible specified in section 1860D-2(b)(1) of the Act, regardless of whether the enrollee has to pay a deductible (for example, through eligibility for an income-related subsidy or enrollment in an enhanced benefit plan with a reduced or no deductible, or for a drug that is not subject to the deductible, such as a covered insulin product or an Advisory Committee on Immunization Practices (ACIP)-recommended adult vaccine).

Because the applicable discount and enrollee cost sharing are both calculated based on the negotiated price of the drug, as described in section II.A. of this final rule, the applicable discount will not affect the application of the standard 25 percent coinsurance under section 1860D-2(b)(2)(A) of the Act or the application of the copayment amount under section 1860D-2(b)(4)(A) of the Act unless, after the discount is applied to the negotiated price of the drug, the enrollee cost sharing specified under the plan would exceed such negotiated price minus the applicable discount. In such a situation, the enrollee cost sharing will be the negotiated price minus the applicable discount. We proposed to codify this policy at Sec. 423.2712(g).

In accordance with section 1860D-14C(c)(1)(C) of the Act, we proposed to codify at Sec. 423.2712(b) our policy that the value of the discount is calculated before the application of supplemental benefits, and at Sec. 423.2712(c) that the applicable discount must be calculated before any coverage or financial assistance under another health or prescription drug benefit plan or program that provides prescription drug coverage or financial assistance. b. Application of Discount Phase-in for Specified Manufacturers and Specified Small Manufacturers

The IRA provides for lower applicable discounts for certain manufacturers' applicable drugs marketed as of August 16, 2022, during a multi-year phase-in period which concludes by 2031. Under section 1860D-14C(g)(4) of the Act, there are two such phase-ins: one for certain applicable drugs of specified manufacturers dispensed to applicable beneficiaries who are eligible for LIS under section 1860D- 14(a) of the Act and one for certain applicable drugs of specified small manufacturers dispensed to all applicable beneficiaries.

The applicable discount paid by specified manufacturers for specified drugs dispensed to applicable beneficiaries who are eligible for LIS, referred to in the statute as the “specified LIS percent,” is defined in section 1860D-14C(g)(4)(B) of the Act. The discount paid by specified small manufacturers for specified drugs dispensed to all applicable beneficiaries, referred to in the statute as the “specified small manufacturer percent,” is defined in section 1860D-14C(g)(4)(C) of the Act. These provisions, which also set forth the criteria by which specified manufacturers and specified small manufacturers are defined, require such manufacturers to pay, when applicable, the phased-in discount. (1) Applicable LIS Percent

Under section 1860D-14C(g)(4)(B) of the Act, for an applicable drug of a specified manufacturer (as described at proposed Sec. 423.2716(a)) that is marketed as of August 16, 2022, and dispensed for an applicable beneficiary who is a subsidy eligible individual (as defined in section 1860D-14(a)(3) of the Act), the applicable discount is as follows:

For such individual who has not incurred costs equal to or exceeding the annual out-of-pocket threshold for the year--

++ For 2025, 1 percent;

++ For 2026, 2 percent;

++ For 2027, 5 percent;

++ For 2028, 8 percent; and

++ For 2029 and each subsequent year, 10 percent.

For such individual who has incurred costs equal to or exceeding the annual out-of-pocket threshold for the year--

++ For 2025, 1 percent;

++ For 2026, 2 percent;

++ For 2027, 5 percent;

++ For 2028, 8 percent;

++ For 2029, 10 percent;

++ For 2030, 15 percent; and

++ For 2031 and each subsequent year, 20 percent.

We proposed to codify the policy for the applicable LIS percent at Sec. 423.2712(d)(1). (2) Applicable Small Manufacturer Percent

Under section 1860D-14C(g)(4)(C) of the Act, for an applicable drug of a specified small manufacturer (as described at proposed Sec. 423.2716(b)), that is marketed as of August 16, 2022, and dispensed for an applicable beneficiary, the applicable discount is as follows:

For such individual who has not incurred costs equal to or exceeding the annual out-of-pocket threshold for the year--

++ For 2025, 1 percent;

++ For 2026, 2 percent;

++ For 2027, 5 percent;

++ For 2028, 8 percent; and

++ For 2029 and each subsequent year, 10 percent; and

For such individual who has incurred costs equal to or exceeding the annual out-of-pocket threshold for the year--

++ For 2025, 1 percent;

++ For 2026, 2 percent;

++ For 2027, 5 percent;

++ For 2028, 8 percent;

++ For 2029, 10 percent;

++ For 2030, 15 percent; and

++ For 2031 and each subsequent year, 20 percent.

We proposed to codify the policy for the applicable small manufacturer percent at Sec. 423.2712(d)(2). (3) Marketed as of the Date of Enactment

Sections 1860D-14C(g)(4)(B)(i) and 1860D-14C(g)(4)(C)(i) of the Act limit the application of the discount phase-ins for specified manufacturers and specified small manufacturers, respectively, to drugs of such manufacturers that are “marketed as of the date of enactment” (that is, August 16, 2022). CMS interprets the reference to a drug that is marketed as of August 16, 2022 to refer to a drug that was marketed by the manufacturer on one specific, backward-looking date, that is, the date of enactment of the IRA. Accordingly, for purposes of identifying applicable drugs of specified manufacturers and specified small manufacturers subject to phase-ins, CMS will determine whether an applicable drug had Part D expenditures on or before August 16, 2022, and did not have a marketing end date on the FDA NDC SPL Data Elements File before August 17, 2022.

We proposed to codify this requirement at Sec. 423.2712(d)(3). c. Straddle Claims

In the case of a claim for an applicable drug for an applicable beneficiary that “straddles” multiple phases of the benefit, section 1860D-14C(g)(4)(E) of the Act requires that for claims that do not fall entirely--

Above the annual deductible specified in section 1860D- 2(b)(1) of the Act, the manufacturer provides the applicable discount on only the portion of the negotiated price that falls above the deductible; and

Below or entirely above the annual out-of-pocket threshold specified in section 1860D-2(b)(4)(B)(i) of the Act, the manufacturer provides the applicable discount on each portion of the negotiated price in accordance with this section based on the benefit phase into which each portion of the negotiated price falls.

We proposed to codify the policy for straddle claims at Sec. 423.2712(e). d. Claims Not Subject to Discount

Since CMS is unable to ascertain from the PDE how much liability, if any, the Part D sponsor has on Medicare Secondary Payer (MSP) claims, we proposed to codify our policy under the Manufacturer Discount Program that discounts are not applied to MSP claims. In addition, since discounts are not applied to Medicaid subrogation claims under the Manufacturer Discount Program because drug costs reported on such claims are accounted for during the payment reconciliation process as contributing entirely to Covered D Plan Paid Amounts (CPP), we proposed to codify our policy that discounts are not paid on Medicaid subrogation claims involving an applicable drug. We proposed to codify those policies at Sec. 423.2712(f)(1) and (2), respectively.

We proposed at Sec. 423.2712(f)(3) to specify that non-standard format coordination of benefits claims involving an applicable drug are not subject to discounts under the Manufacturer Discount Program.

Lastly, at Sec. 423.2712(f)(4) we proposed to codify our longstanding policy that manual claims involving an applicable drug with a service provider identification qualifier of “Other” are not subject to discounts under the Manufacturer Discount Program.

As discussed in section II.C.3. of this preamble, compounded drug products are excluded from the definition of applicable drug that we proposed to revise at Sec. 423.100; as such, claims for Part D compounds are not subject to discounts under the Manufacturer Discount Program.

CMS received no comments on proposed Sec. 423.2712 and we are finalizing this provision without modification. 6. Phase-In of Applicable Discounts (Sec. Sec. 423.2716 Through 423.2728)

The IRA establishes lower percentages for discounts on applicable drugs that are subject to phase-ins for specified manufacturers and specified small manufacturers. Since the discount reduces the plan liability for applicable drugs, Part D sponsors are responsible for covering the remaining amount of the negotiated price, less enrollee cost sharing, for applicable drugs subject to a phased-in discount percentage as discussed in this section.

Section 1860D-14C(b)(1)(A) of the Act specifies that a Manufacturer Discount Program agreement shall require the agreement holder to provide discounted prices for applicable drugs covered by its agreement when dispensed to applicable beneficiaries. The IRA does not provide a mechanism by which CMS could permit specified manufacturers or specified small manufacturers to “opt out” of the phase-in discounts. At Sec. 423.2716, we proposed to codify, without modification, the criteria for phase-in eligibility for specified manufacturers and specified small manufacturers established in the Manufacturer Discount Program Final Guidance. a. Specified Manufacturer

Pursuant to section 1860D-14C(g)(4)(B)(ii) of the Act, a specified manufacturer is a manufacturer of an applicable drug that, in 2021 had--

A Coverage Gap Discount Program agreement in effect; \15\

\15\ A manufacturer that participated in the Coverage Gap Discount Program in 2021 by means of an arrangement whereby its labeler code(s) were listed on another manufacturer's Coverage Gap Discount Program agreement would be considered to have had an agreement in effect during 2021. See November 17, 2023 HPMS memorandum entitled, “Medicare Part D Manufacturer Discount Program: Methodology for Identifying Specified Manufacturers and Specified Small Manufacturers” for more information.

Total expenditures for all of its specified drugs (as proposed at Sec. 423.2704) covered by a Coverage Gap Discount Program agreement for 2021 and covered under Part D in 2021 represented less than 1.0 percent of total expenditures for all Part D drugs in 2021; and

Total expenditures for all of its specified drugs that are single source drugs and biological products for which payment may be made under Part B in 2021 represented less than 1.0 percent of the total expenditures under Part B for all drugs or biological products in 2021.

We proposed to codify this eligibility criteria for specified manufacturers at Sec. 423.2716(a).

Pursuant to the aggregation rule set forth in section 1860D- 14C(g)(4)(B)(ii)(II)(bb) of the Act, all entities, including corporations, partnerships, proprietorships, and other entities treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 are treated as one manufacturer for purposes of this section. Our proposed definition of specified manufacturer is subject to the limitation with respect to manufacturer acquisitions proposed at Sec. 423.2724 and discussed in section II.C.6.d. of this final rule.

We proposed to codify the aggregation rule at Sec. 423.2716(c). b. Specified Small Manufacturer

Pursuant to section 1860D-14C(g)(4)(C)(ii) of the Act, a specified small manufacturer is a manufacturer of an applicable drug that, in 2021--

Is a specified manufacturer as described at proposed Sec. 423.2716(a); and

The total expenditures under Part D for any one of its specified small manufacturer drugs (as defined in Sec. 423.2704) covered under a Coverage Gap Discount Program agreement for 2021 and covered under Part D in 2021 are equal to or greater than 80 percent of the total expenditures for all its specified small manufacturer drugs covered under Part D in 2021.

We proposed to codify this eligibility criteria for specified small manufacturers at Sec. 423.2716(b).

Pursuant to the aggregation rule set forth in section 1860D- 14C(g)(4)(C)(ii)(II)(bb) of the Act, all entities, including corporations, partnerships, proprietorships, and other entities treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 are treated as one manufacturer for purposes of this section. Our proposed definition of specified small manufacturer is subject to the limitation with respect to manufacturer acquisitions proposed at Sec. 423.2724 and discussed in section II.C.6.d. of this final rule.

We proposed to codify the aggregation rule at Sec. 423.2716(c). c. Determination of Phase-In Eligibility

As discussed in section 50.1 of the Manufacturer Discount Program Final Guidance and the preamble to the proposed rule, CMS identifies which manufacturers qualify for phase-ins by analyzing Medicare Part B claims data, Part D PDE data, and ownership information submitted by manufacturers. The methodology used by CMS to identify manufacturers eligible for phase-ins was provided in the November 17, 2023 HPMS memorandum titled “Medicare Part D Manufacturer Discount Program: Methodology for Identifying Specified Manufacturers and Specified Small Manufacturers” (Manufacturer Discount Program Methodology).

The phase-in determination is a one-time assessment that CMS performs with respect to each manufacturer when it executes a Manufacturer Discount Agreement or when a manufacturer's labeler code(s) is first added to another manufacturer's Manufacturer Discount Program agreement. As such, the phase-in statuses have already been determined for likely the vast majority of manufacturers that will participate in the Manufacturer Discount Program during the phase-in periods (that is, through 2030). Codifying the methodology described in the Manufacturer Discount Program Methodology for identifying specified manufacturers and specified small manufacturers ensures consistency across the program by applying the same methodology to future cases of new phase-in determinations to be made under the regulations proposed in this rule (for example, when a new manufacturer enters into a Manufacturer Discount Program agreement with respect to 2027 or thereafter) as the methodology that was applied to the manufacturers currently participating in the Manufacturer Discount Program. We proposed to codify the methodology at Sec. 423.2720.

Specifically, we proposed to codify at Sec. 423.2720 that for each manufacturer with one or more FDA-assigned labeler codes covered by a Manufacturer Discount Program agreement, CMS will determine whether the manufacturer is a specified manufacturer or a specified small manufacturer when the manufacturer executes a Manufacturer Discount Program agreement, or, in the case of a manufacturer whose FDA-assigned labeler code(s) is covered by another manufacturer's Manufacturer Discount Program agreement, when such labeler code(s) is first added to such agreement. In addition, we proposed to codify that in applying the aggregation rule at Sec. 423.2716(c), CMS will attribute expenditures for a drug to a manufacturer based on the NDC(s) for the drug, as reported on PDE records. Specifically, CMS will match the labeler code extracted from the first 5 digits of each NDC to the manufacturer to whom the labeler code is assigned by the FDA.

As discussed in detail later in this section, we proposed at paragraph (a) of Sec. 423.2720 the methodology for identifying “specified manufacturers”, at paragraph (b) of Sec. 423.2720 the methodology for identifying “specified small manufacturers”, and at paragraph (c) the approach CMS will use to issue the phase-in determination notices once a phase-in determination is made.

For identification of a specified manufacturer, we proposed to codify at Sec. 423.2720(a)(1) that a manufacturer is considered to have had a Coverage Gap Discount Program agreement in 2021, as specified at Sec. 423.2716(a)(1), if the manufacturer (i) had a Coverage Gap Discount Program agreement in effect during 2021, or (ii) participated in the Coverage Gap Discount Program in 2021 by means of an arrangement whereby its labeler code(s) was covered by another manufacturer's Coverage Gap Discount Program agreement in effect during 2021.

CMS will calculate the three values needed for determining which manufacturers that had a Coverage Gap Discount Program agreement in 2021 are specified manufacturers and specified small manufacturers. The three values are:

The manufacturer's percent share of Part D total expenditures,

The manufacturer's percent share of Part B total expenditures, and

Each drug's percent share of the specified manufacturer's Part D total expenditures.

The first value that needs to be determined is each manufacturer's share of Part D total expenditures, which will be used to determine if the manufacturer's total expenditures for all of its applicable drugs covered under a Coverage Gap Discount Program agreement(s) for 2021, and covered under Part D in 2021, represented less than 1.0 percent of total expenditures for all Part D drugs in 2021. CMS will identify manufacturers that meet this threshold for the specified manufacturer phase-in by first summing the 2021 Part D total expenditures for Part D drugs, then summing the 2021 Part D total expenditures for applicable drugs for each manufacturer, and finally, identifying each manufacturer for which 2021 Part D total expenditures for applicable drugs are less than 1.0 percent of all 2021 Part D total expenditures.

The first step is to calculate the Part D total expenditures for 2021. We will calculate the Part D total expenditures for 2021 reported on all final action,\16\ non-delete Prescription Drug Event (PDE) records submitted as of June 30, 2022, which represents the annual PDE data submission deadline for Part D payment reconciliation, for all Part D drugs dispensed in benefit year 2021. This value represents the Part D total expenditures and will be used as the denominator when calculating the percent share of Part D total expenditures attributable to each

manufacturer's applicable drugs in step 3 below.

\16\ We use the term “final action” to describe the most recently accepted original, adjustment, or delete PDE record representing a single dispensing event. See the 2011 Regional Prescription Drug Event Data Technical Assistance Participant Guide, page 3-29, available at https://www.csscoperations.com/internet/ csscw3.nsf/DIDC/ FJUKANFCP1~Prescription%20Drug%20Program%20(Part%20D)~Training.

The second step is to calculate each manufacturer's Part D total expenditures for applicable drugs for 2021. For purposes of this calculation, CMS will identify the National Drug Codes (NDCs) attributable to the manufacturer that have a Marketing Category Code of `NDA', `BLA', or `NDA AUTHORIZED GENERIC' on the NDC SPL Data Elements (NSDE) File maintained by the Food and Drug Administration (FDA). CMS will attribute an NDC as reported on the PDE record to the manufacturer using the labeler code extracted from the first 5 digits of each NDC. CMS will calculate the Part D total expenditures for each relevant NDC attributable to the manufacturer as reported on all final action, non- delete PDE records submitted as of June 30, 2022 for applicable drugs dispensed in benefit year 2021. CMS will then sum the Part D total expenditures for all relevant NDCs attributable to the manufacturer-- that is, the Part D total expenditures for all applicable drugs of all manufacturers treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986, as identified by the ownership information submitted and attested to by the manufacturer (as described in the aggregation rule proposed at Sec. 423.2716(c)).

The third step is to calculate each manufacturer's percent share of Part D total expenditures for 2021. CMS will divide the Part D total expenditures for applicable drugs of the manufacturer, determined in step 2 above, by the Part D total expenditures for all Part D drugs, determined in step 1 above, and then multiply by 100 to get the manufacturer's percent share. If a manufacturer's Part D total expenditures for its applicable drugs are less than 1.0 percent of the 2021 Part D total expenditures, CMS will consider the manufacturer to have satisfied the Part D total expenditure criterion for specified manufacturer phase-in eligibility.

We proposed to codify this part of the methodology at Sec. 423.2720(a)(2).

Next, CMS will determine each manufacturer's share of Part B total expenditures, which will be used to determine if the manufacturer's total expenditures for all of its specified drugs that are single source drugs or biological products represented less than 1.0 percent of the total expenditures for all drugs or biologicals under Part B in 2021, excluding expenditures for a drug or biological that are bundled or packaged into payment for another service. This calculation involves three steps: identifying 2021 Part B total expenditures for drugs and biological products, identifying the 2021 Part B total expenditures for single-source drugs and biological products for each manufacturer that had a Coverage Gap Discount Program agreement(s) in 2021, and identifying eligible manufacturers for which Part B total expenditures for single source drugs or biological products represent less than 1.0 percent of total expenditures for drug and biological products under Part B for 2021.

The first step is to calculate Part B total expenditures for all drugs and biological products for 2021. CMS will identify all Healthcare Common Procedure Coding System (HCPCS) codes for drugs and biological products. Then, CMS will calculate Part B Carrier, durable medical equipment (DME), and Outpatient Medicare Part B total expenditures for drug and biological products for Fee-for-Service claim line items with a drug- or biological product-related HCPCS code, submitted as of December 31, 2022, which represents the Medicare Fee- For-Service submission deadline for CY 2021.

The second step is to calculate each manufacturer's Part B total expenditures for applicable drugs that are single-source drugs and biological products for 2021. CMS will first map the HCPCS codes identified in step 1 above to NDCs using the NDC-HCPCS Crosswalk file provided as part of the CMS ASP Pricing File and the Pricing, Data Analysis and Coding (PDAC) HCPCS to NDC crosswalk file. Since the ASP NDC-HCPCS Crosswalk file is not a comprehensive list of all drugs/NDCs available in the United States, a Medi-Span Generic Product Identifier (GPI-14) expansion is used to help identify all NDCs associated with the HCPCS codes. We define a single source drug or biological following the definition in section 1847A(c)(6)(D) of the Act and we are identifying NDCs for single source drugs using Medi-Span and the FDA NSDE marketing category data, or biological products using the FDA Purple Book. A HCPCS code is considered to be indicative of a single source drug or biological product if each NDC associated with the HCPCS code is for a single source drug or biological product. The corresponding NDCs are used to determine the labeler codes for each applicable HCPCS code. CMS will match the labeler code extracted from the first 5 digits of each NDC to the manufacturer. Since a HCPCS code can be mapped to multiple NDCs and labeler codes, it can also be associated with multiple manufacturers. While Part B single source drugs or biological products can be mapped to a particular HCPCS code, mapping applicable Part B expenditures to a particular manufacturer when a particular HCPCS code may reflect drugs of multiple manufacturers can be challenging. For this reason, CMS will only count the payments associated with a HCPCS code toward a manufacturer's 2021 Part B total expenditures if the HCPCS code is only mapped to drugs of that same manufacturer, consistent with the aggregation rule proposed at Sec. 423.2716(c).

The third step is to calculate each manufacturer's percent share of Part B total expenditures for 2021. CMS will divide the Part B total expenditures for the applicable drugs that are single source drugs and biological products of the manufacturer, determined in step 2 above, by the Part B total expenditures for all drugs and biological products, determined in step 1 above, and then multiply by 100 to get the manufacturer's percent share. If a manufacturer's Part B total expenditures are less than 1.0 percent of the 2021 Part B total expenditures, CMS will consider the manufacturer to have satisfied the Part B total expenditure criterion for the specified manufacturer phase-in eligibility.

We proposed to codify this part of the methodology at Sec. 423.2720(a)(3).

The last value that must be determined for each specified manufacturer is the total expenditures under Part D for any one of the manufacturer's specified drugs covered under a Coverage Gap Discount Program agreement(s) for 2021, and covered under Part D in 2021. This will be used to determine if the manufacturer's total expenditures for one specified drug are equal to or greater than 80 percent of the total expenditures for all of its specified drugs covered under Part D in 2021 such that the manufacturer is eligible for the specified small manufacturer phase-in.

The first step is to aggregate all NDCs for applicable drugs reported on PDEs for each specified manufacturer that have the same active moiety for drug products, or same active ingredient for biological products, and with the same holder of the NDA or BLA. To determine one drug's share of a manufacturer's Part D total expenditures, which we will use to identify specified small manufacturers, we first note that for drug products, one specified small manufacturer drug will include all dosage forms and strengths of a drug with the same active moiety

and the same holder of the NDA,\17\ inclusive of products that are marketed pursuant to different NDAs. For biological products, one specified small manufacturer drug will include all dosage forms and strengths of the biological product with the same active ingredient and the same holder of the BLA,\18\ inclusive of products that are marketed pursuant to different BLAs. CMS will identify the holder of the NDA/BLA for a drug or biological product as reported in Drugs@FDA or FDA Purple Book. If a drug is a fixed combination drug \19\ with two or more active moieties/active ingredients, the distinct combination of active moieties/active ingredients will be considered as one active moiety/ active ingredient for the purpose of identifying a specified small manufacturer drug. Therefore, all formulations of this distinct combination with the same NDA/BLA holder will be aggregated across all dosage forms and strengths of the fixed combination drug. A product containing only one (but not both) of the active moieties/active ingredients with the same NDA/BLA holder will not be aggregated with the formulations of the fixed combination drug and will be considered a separate specified small manufacturer drug. CMS will attribute Part D expenditures for a drug, including authorized generic drugs and repackaged and relabeled drugs, to a specified manufacturer based on the NDC(s) for the drug, as reported on PDE records. Specifically, CMS will match the labeler code extracted from the first 5 digits of each NDC to the manufacturer. (See the aggregation rule proposed at Sec. 423.2716(c)).

\17\ As described in section 505(c) of the FD&C Act.

\18\ As described in section 351(a) of the PHS Act.

\19\ As described in 21 CFR 300.50.

The second step is to calculate the Part D total expenditures for each aggregated drug for 2021. CMS will calculate the Part D total expenditures for each aggregated drug attributable to the manufacturer as identified in step 1 by summing the Part D total expenditures for all NDCs under each aggregated drug as reported on all final action, non-delete PDE records submitted as of June 30, 2022, for drugs dispensed in benefit year 2021.

The third step is to calculate each drug's percent share of the specified manufacturer's Part D total expenditures for applicable drugs for 2021. CMS will divide the Part D total expenditures for each aggregated drug, determined in step 2, by the Part D total expenditures for all applicable drugs of the specified manufacturer, and then multiply by 100 to get the percent share. Specified manufacturers that have 2021 Part D total expenditures for a single specified drug that are equal to or greater than 80 percent of the specified manufacturer's Part D total expenditures for all specified drugs are considered to have met the eligibility criteria for specified small manufacturers and are eligible for the specified small manufacturer phase-in.

We proposed to codify this part of the methodology at Sec. 423.2720(b).

Finally, at paragraph (c)(1) of Sec. 423.2720, we proposed to specify that CMS will issue a phase-in determination notice to each manufacturer that has executed and has in effect a Manufacturer Discount Program agreement when such determination is made, delivered by electronic mail, to the primary point of contact as identified by the manufacturer. At paragraph (c)(2) of Sec. 423.2720, we proposed to specify that in the case of a manufacturer that participates in the Manufacturer Discount Program by means of an arrangement whereby its labeler code(s) is covered by another manufacturer's Manufacturer Discount Program agreement, CMS will issue a phase-in eligibility determination notice to the agreement holder.

For purposes of identifying manufacturers eligible for phase-ins, the aggregation rule at section 1860D-14C(g)(4)(B)(ii)(II)(bb) of the Act for specified manufacturers and section 1860D- 14C(g)(4)(C)(ii)(II)(bb) of the Act for specified small manufacturers requires that CMS treats as a single manufacturer all entities that are treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986. As noted previously, we proposed to codify the aggregation rule at Sec. 423.2716(c). The statute, at section 1860D-14C(g)(4)(B)(ii)(II)(bb) of the Act for specified manufacturers and section 1860D-14C(g)(4)(C)(ii)(II)(bb) of the Act for specified small manufacturers, also requires that manufacturers provide and attest to necessary information as specified by CMS. Because CMS does not have information about which entities are treated as a single employer under the Internal Revenue Code of 1986, manufacturers that wish to participate in the Manufacturer Discount Program must submit and attest to information about the company and its products in order for CMS to make a determination about phase-in eligibility. d. Effect of Manufacturer Acquisition on Phase-In Eligibility

Section 1860D-14C(g)(4)(B)(ii)(III) of the Act requires that when a specified manufacturer is acquired after 2021 by another manufacturer that is not a specified manufacturer, the acquired manufacturer is no longer a specified manufacturer effective at the beginning of the plan year immediately following the acquisition. For acquisitions before 2025, the change is effective January 1, 2025. Section 1860D- 14C(g)(4)(C)(ii)(III) of the Act establishes a similar requirement for specified small manufacturers: when acquired after 2021 by a manufacturer that is not a specified small manufacturer, such manufacturer is no longer a specified small manufacturer effective at the beginning of the plan year immediately following the acquisition (or January 1, 2025, for acquisitions before 2025).

While the statute is explicit that an acquired specified manufacturer or specified small manufacturer loses that specific phase- in status upon acquisition by another manufacturer that is not a specified manufacturer or a specified small manufacturer, respectively, it does not expressly address whether such acquired manufacturers assume the phase-in eligibility of the acquiring manufacturer or lose all phase-in eligibility (for example, a specified manufacturer is acquired by a specified small manufacturer or a specified small manufacturer is acquired by a specified manufacturer). Similarly, the statute does not expressly address what happens if a specified manufacturer or a specified small manufacturer acquires a manufacturer that CMS determined was not eligible for either phase-in. Consistent with our approach to acquisitions under the Manufacturer Discount Program thus far, we proposed at Sec. 423.2724 to review phase-in status bidirectionally such that acquired manufacturers may gain or lose phase-in eligibility as the result of an acquisition. In other words, regardless of the phase-in status of the acquiring manufacturer or the acquired manufacturer at the time of the acquisition, when a manufacturer acquires another manufacturer (that is, the acquired manufacturer becomes part of such acquiring manufacturer under the aggregation rule at Sec. 423.2716(c)), the acquired manufacturer will assume the phase-in status of the acquiring manufacturer, as of the effective date following the acquisition discussed later in this section. CMS believes this bidirectional policy best aligns with the statutory structure and purpose of the

phase-ins. First, we believe this policy is most consistent with the directive in sections 1860D-14C(g)(4)(B)(ii)(II)(bb) and 1860D- 14C(g)(4)(C)(ii)(II)(bb) of the Act to treat all entities, including corporations, partnerships, proprietorships, and other entities, treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 as one manufacturer for the purposes of the phase-ins. Without applying the effect of acquisitions bidirectionally, manufacturers that are members of the same controlled group could have different phase-in eligibility statuses as a result of an acquisition. Additionally, while a specified small manufacturer that is acquired by a specified manufacturer will lose its specified small manufacturer status consistent with section 1860D-14C(g)(4)(C)(ii)(III) of the Act, such manufacturer becomes a specified manufacturer under this policy, rather than losing eligibility for phase-in altogether.

We proposed that all changes to a manufacturer's phase-in status as a result of an acquisition will become effective on January 1 of the year following the acquisition or, in the case of an acquisition before 2025, effective January 1, 2025. This aligns the effective date of changes to a manufacturer's phase-in status across all acquisitions with the requirements in sections 1860D-14C(g)(4)(B)(ii)(III) and 1860D-14C(g)(4)(C)(ii)(III) of the Act discussed previously and is consistent with our approach to date for acquisitions that have already occurred. Operationally, adopting a January 1 effective date minimizes burden on Part D sponsors who would otherwise need to regularly make additional claims processing changes to accommodate phase-in status changes throughout the year given the frequency of corporate ownership changes in the pharmaceutical industry. It also minimizes any need for Part D sponsors to make retrospective PDE adjustments if, for example, CMS does not become aware of the acquisition until after it occurs.

In sum, in alignment with the statutory requirements and the procedures already in place under the Manufacturer Discount Program, we proposed at Sec. 423.2724 to codify a regulatory policy for manufacturer acquisitions where, regardless of the manufacturer's phase-in eligibility status prior to the acquisition, once acquired, the acquired manufacturer is recognized as having the phase-in eligibility status of the acquiring manufacturer. Consistent with the statutory requirements related to the loss of phase-in eligibility, and to minimize any potential impact on Part D sponsors or manufacturers as a result of changes to manufacturer phase-in status in the middle of a plan year, we also proposed at Sec. 423.2724 that any change in phase- in eligibility status as a result of an acquisition, regardless of whether the acquired manufacturer gains or loses phase-in eligibility, would be effective on January 1 of the year following the acquisition. e. Recalculation

We proposed to codify the recalculation policy discussed in section 50.2.2 of the Manufacturer Discount Program Final Guidance, with certain modifications, at Sec. 423.2728.

As discussed in the guidance, while the requirements to qualify as a specified manufacturer or specified small manufacturer are set forth in statute, we recognize that, while unlikely, a manufacturer may wish to raise concerns with the outcome of the application of those statutory requirements. As such, CMS established a mechanism for manufacturers that wish to request a recalculation of their phase-in eligibility determination. Such requests can only be filed by the manufacturer that received the determination. We proposed to codify this requirement at Sec. 423.2728(a).

Under the recalculation policy, a manufacturer that seeks a recalculation of their phase-in eligibility determination must file the request with CMS no later than 30 calendar days from the date the eligibility determination is electronically sent to the manufacturer. The request must clearly describe the issue(s) forming the basis of the request for recalculation, and include any relevant supporting information. We proposed to codify these requirements at Sec. 423.2728(b).

After consideration of the issues raised in a recalculation request, CMS will decide whether to perform the recalculation, and will issue a written decision to the manufacturer that will include CMS's decision about whether to perform the requested recalculation and, if such recalculation is performed, the resulting eligibility determination. The decision is final and binding, subject to the requirements of the Manufacturer Discount Program under section 1860D- 14C of the Act and the Manufacturer Discount Program agreement. We proposed to codify this policy at Sec. 423.2728(c).

Finally, at Sec. 423.2728(d), we proposed to limit the recalculation process to requests that meet the requirements proposed in Sec. 423.2728(a) and (b). The recalculation request process cannot be used to request or be granted an exception to the requirements set forth in statute that determine eligibility for the specified manufacturer or specified small manufacturer phase-in.

CMS received two comments regarding the phase-in methodology and summaries of the comments with our responses are below.

Comment: A commenter was opposed to aspects of our proposed methodology to determine specified small manufacturer eligibility. Specifically, the commenter objected to our proposal to calculate total expenditures under Part D for each applicable drug of a manufacturer based exclusively on PDE records and urged CMS to instead use PDE data as prima facie evidence, rather than the sole determinant of Part D total expenditures, and to consider, as part of CMS's recalculation process, other sources of evidence for Part D total expenditures, including data submitted to CMS by the manufacturer. The commenter argued that CMS must include all costs directly related to the dispensing of a covered drug when determining Part D total expenditures, even if those costs are not included in the PDE data set. The commenter also argued that, because of supposed flaws in the PDE data set and because PDE data is not relied on exclusively in certain other contexts, it cannot be relied on exclusively to determine the Part D total expenditures for applicable drugs of a manufacturer.

Response: CMS acknowledges that certain aspects of our Manufacturer Discount Program phase-in methodology as set forth in applicable guidance are the subject of recent litigation, including Servier Pharmaceuticals LLC v. Becerra, No. 1:24-cv-02664 (D.D.C.) and related appeal Servier Pharmaceuticals LLC v. Kennedy, No. 25-5054 (D.C. Cir.) (hereafter referred to as Servier) and PharmaEssentia USA Corp. v. HHS, No. 1:24-cv-03346 (D.D.C.) (hereafter referred to as PharmaEssentia). The district court in Servier upheld CMS's determination that Servier fails to qualify as a specified small manufacturer. Servier appealed the district court's decision, which appeal is pending in the U.S. Court of Appeals for the D.C. Circuit. The district court in PharmaEssentia vacated CMS's determination that PharmaEssentia failed to qualify as a specified small manufacturer and remanded the matter back to CMS after expressly recognizing that CMS might reach the same conclusion after further proceedings.

CMS appreciates the comment, but we will continue to use PDE data as the basis for calculating total expenditures under Part D because PDEs are the

records used to capture Part D expenditures. CMS created the Medicare Drug Data Processing System (DDPS) to collect and maintain records for all Part D claims, and the agency requires Part D sponsors to submit a PDE for every claim. The PDE contains information about payment liability of the plan and the enrollee. As discussed in more detail in section II.C.13 of this final rule, PDEs are subject to a robust editing process to verify their accuracy. PDE records are used to pay Part D sponsors for administering the prescription drug benefit and to calculate manufacturer discounts under the Coverage Gap Discount Program and the Manufacturer Discount Program. We note that while PDEs, like any data set, may contain errors, Part D sponsors have significant financial incentive to submit timely and accurate PDE records, in addition to being legally required to do so. As a result, we continue to believe that it is appropriate and consistent with the statute to calculate Part D total expenditures based on PDE data when determining a manufacturer's phase-in eligibility under the Manufacturer Discount Program.

Nevertheless, consistent with the district court's opinion in PharmaEssentia, we are clarifying that a manufacturer may provide additional information, as part of a timely recalculation request under the process described at Sec. 423.2728, that the manufacturer asserts is evidence of Part D total expenditures that were not reported on PDEs. CMS will evaluate the information to determine if it is sufficient to merit consideration and what, if any, further investigation of the information provided is necessary to determine if there were actually paid Part D claims. If CMS determines based upon the additional information, and any additional investigation, that there were paid Part D claims that were not reported on PDEs that constitute Part D total expenditures under section 1860D-14C(g)(4)(D) of the Act, CMS will include those expenditures in the recalculation, consistent with the requirements of this section.

For clarity and precision, we are making a minor change in the regulation text at Sec. 423.2728(b) to specify that supporting documentation for recalculation requests must be included with the recalculation request.

Comment: Another commenter also opposed aspects of CMS's proposed methodology for determining specified small manufacturer phase-in eligibility. Specifically, the commenter disagreed with our proposal to attribute 2021 total expenditures under Part D to a manufacturer based on the labeler code for purposes of identifying each specified drug of a manufacturer and calculating the Part D total expenditures for such drugs under Sec. 423.2720(b). Instead, the commenter recommended that CMS attribute total expenditures for a drug to the holder of the New Drug Application (NDA) for that drug. The commenter stated that in other CMS programs that utilize similar statutory definitions of manufacturer as the definition found in section 1860D-14C(g)(5) of the Act, the NDA holder is identified as a manufacturer. The commenter further recommended that even if CMS were not to attribute expenditures based on the entity that holds the NDA for the applicable drug, the agency should consider evidence in addition to the labeler code when attributing total expenditures. The commenter stated that, while the labeler code may accurately reflect the manufacturer in many cases and can be used as a first step, the agency should consider additional evidence where appropriate to identify the manufacturer.

The commenter also opined that, if CMS alters the methodology used to determine phase-in eligibility, the changes should be applied retroactively to phase-in determinations made for manufacturers that have already entered into agreements to participate in the Manufacturer Discount Program or at least to those phase-in determinations that manufacturers have previously challenged as erroneous. Relatedly, the commenter further recommends that CMS establish a mechanism to adjust manufacturer liability on previously invoiced discount amounts of a manufacturer affected by an erroneous determination that the manufacturer is not a specified small manufacturer, and suggests that the dispute resolution framework at Sec. 423.2764 should be used for this purpose.

Response: While we recognize that the statutory definition of manufacturer at section 1860D-14C(g)(5) of the Act may be similar to the statutory definition of manufacturer used in other programs, we decline to adopt the commenter's suggestion that such similarities in manufacturer definitions indicate that for purposes of the Manufacturer Discount Program, CMS should attribute Part D expenditures for a specified drug to the entity that holds the NDA of such drug. We continue to believe that the labeler code provides the most appropriate basis by which to attribute Part D expenditures to a manufacturer for purposes of making phase-in eligibility determinations under the Manufacturer Discount Program and that this methodology is consistent with section 1860D-14C of the Act, including CMS's longstanding practices of entering into the agreement for participation in the Coverage Gap Discount Program and Manufacturer Discount Program with the entity that meets the statutory definition of manufacturer based on such entity being the holder of the FDA-assigned labeler code(s) for the applicable drugs to which the agreement will apply.\20\ As explained in the Manufacturer Discount Program Methodology, CMS identifies each Part D expenditure for a drug using the unique NDC reported on the PDE record for the expenditure and attributes that expenditure to the one manufacturer uniquely assigned the labeler code for that drug as reflected in the first five digits of the NDC.

\20\ As discussed earlier, such agreements may also include the labeler codes assigned by the FDA to another manufacturer, but only when such manufacturers have entered into an arrangement whereby the agreement holder lists such labeler codes on its agreement and all other applicable requirements are met.

CMS agrees with the commenter's recommendation that there should be a mechanism to adjust previously invoiced discounts of a manufacturer impacted by an erroneous determination about the manufacturer's phase- in eligibility. Prior to any correction of PDE records or discounts, a determination would have to be made that the phase-in eligibility status was incorrect. The process established in the Manufacturer Discount Program Final Guidance and codified at Sec. 423.2728 for requesting such corrections is the recalculation process. CMS has also made a small number of corrections to manufacturer phase-in status in the first year of the program through own-motion review.

Retrospective adjustment of previously invoiced discounts or previously submitted PDE records can occur for reasons not limited to a retrospective change to or correction of a manufacturer's phase-in status. While retrospective application of a correction would depend on the specific situation, and may involve adjustments of overpayments or underpayments by a manufacturer, CMS has already established a process for adjusting previously invoiced manufacturer discounts, which is the PDE outlier process described in the January 17, 2025 HPMS memorandum, Prescription Drug Event (PDE) Analysis website for CMS Data Quality Review Outliers, Withheld and Invoiced Outliers, and Reviews of Invoiced Data Disputed by Manufacturers.

After consideration of the comments received on these sections of our

proposal, and for the reasons described, we are finalizing the regulation text at Sec. Sec. 423.2716 through 423.2728 as proposed, with minor modifications at Sec. 423.2728(b) to further clarify our expectation that such supporting documentation must be included with the timely recalculation request. 7. Use of a Third Party Administrator (Sec. 423.2732)

We proposed to codify the agency's engagement of a TPA at Sec. 423.2732. Specifically, we proposed at Sec. 423.2732(a) that CMS will engage a TPA to assist in the administration of the Manufacturer Discount Program, which may include and is not limited to facilitating Manufacturer Discount Program invoicing, the receipt and distribution of funds of a manufacturer, and the dispute resolution process described in Sec. 423.2764.

We proposed at Sec. 423.2732(b)(1) that agreement holders must enter into and have in effect an agreement with the TPA and that such TPA agreement will only terminate upon the termination of the agreement holder's Manufacturer Discount Program agreement. We further proposed at Sec. 423.2732(b)(2) that agreement holders must establish and maintain electronic connectivity with the TPA for the purpose of timely transmission of data and funds.

We received no comments on proposed Sec. 423.2732 and are finalizing this provision as proposed. 8. Requirement for Point-of-Sale Discounts (Sec. Sec. 423.505 and 423.2736) a. Point-of-Sale Discounts

Under section 60.1 of the Manufacturer Discount Program Final Guidance, Part D sponsors must provide applicable discounts on applicable drugs at the point of sale on behalf of the manufacturer. We proposed to codify this policy at Sec. 423.2736(a). In order to provide point-of-sale discounts, plan sponsors must determine whether an enrollee is an applicable beneficiary (as defined at Sec. 423.100), including where the enrollee falls in the phases of the Part D benefit based on their gross drug spend and incurred costs at the time an applicable drug is dispensed; whether a drug is an applicable drug (as defined at Sec. 423.100); and the amount of the discount (in accordance with proposed Sec. 423.2712, which we are finalizing in this final rule).

Part D regulations at part 423 subpart K set forth the requirements for Part D contracts between Part D sponsors and CMS. We proposed a conforming change to revise the text of Sec. 423.505(b)(24) to specify that Part D sponsors must provide applicable discounts on applicable drugs when dispensed to applicable beneficiaries in accordance with the requirements in subpart W of part 423 for the Coverage Gap Discount Program and the requirements in subpart AA of part 423 for the Manufacturer Discount Program. b. Direct Member Reimbursement

As established under section 60.1.1 of the Manufacturer Discount Program Final Guidance, Part D sponsors must provide applicable discounts on claims for applicable drugs submitted by applicable beneficiaries as direct member reimbursements (DMRs), including out-of- network and in-network paper claims, if such claims are payable under the Part D plan. While the sponsor must account for the discount in adjudicating the DMR request and the associated PDE submitted to CMS, the point-of-sale requirement does not apply. We proposed codifying this policy at Sec. 423.2736(b). As we explained in the proposed rule, for purposes of discounting DMR claims for prescriptions filled at out- of-network pharmacies, the negotiated price means the plan allowance as set forth in Sec. 423.124. c. Pharmacy Prompt Payment

Pursuant to section 1860D-14C(c)(1)(B) of the Act, and consistent with section 60.3 of the Manufacturer Discount Program Final Guidance and CMS pharmacy prompt payment requirements at Sec. 423.520, we proposed at Sec. 423.2736(c) that Part D sponsors must reimburse a network pharmacy (as defined in Sec. 423.100) the amount of the applicable discount no later than the applicable number of calendar days (as defined in Sec. 423.100) after the date of dispensing (as defined in Sec. 423.100) of an applicable drug. As described in the definition of date of dispensing, for long-term care and home infusion pharmacies, the date of dispensing can be interpreted as the date the pharmacy submits the claim for reimbursement. d. Prescription Drug Event Requirements

We proposed to codify at Sec. 423.2736(d) a requirement that Part D sponsors must report the applicable discounts made available to their enrollees under the Manufacturer Discount Program on the PDE records associated with such discounts. We explained that this information is later used for the cost-based reconciliation of prospective Manufacturer Discount Program payments made to each sponsor (as proposed at Sec. 423.2744(c)) and to invoice agreement holders for reimbursement of the amount advanced on their behalf by the Part D sponsor at the point of sale (as proposed at Sec. 423.2756(a)). e. Retroactive Adjustments

Under section 60.1.5 of the Manufacturer Discount Program Final Guidance, Part D sponsors must make retroactive adjustments to applicable discounts as necessary to reflect applicable changes, including changes to the claim, beneficiary eligibility, or benefit phase determined after the date of dispensing. We proposed to codify this policy at Sec. 423.2736(e).

Comment: We received a comment in support of our proposal at Sec. 423.505 to require Part D sponsors to provide applicable discounts on applicable drugs at the point of sale on behalf of the manufacturer, in alignment with the process that has been used under the Coverage Gap Discount Program since 2011.

Response: CMS appreciates the commenter's support.

Comment: We received several supportive comments on our proposal at Sec. 423.2736(c) to require Part D sponsors to reimburse a network pharmacy the amount of the applicable discount no later than the applicable number of calendar days after the date of dispensing of an applicable drug. These commenters stated that clear prompt payment requirements promote consistent administration of the Manufacturer Discount Program, reduce payment delays that can create operational burdens at the pharmacy counter, support continuity of care for Part D enrollees, and strengthen the integrity of the redesigned Part D benefit.

Response: We thank the commenters for their support of our prompt payment proposals.

Comment: A commenter requested that CMS ensure Manufacturer Discount Program discounts are applied correctly at the point of sale so that increased out-of-pocket costs do not result in access disruptions. Another commenter recommended that enrollees be provided with real-time data regarding the impact of discounts under the Manufacturer Discount Program on the enrollee's progress toward the Part D out-of-pocket maximum.

Response: We thank the commenters for their feedback but decline to make the requested changes. Because manufacturer discounts generally do not impact the amount of enrollee cost sharing, are applied at the point of sale, and reduce plan liability for the cost of Part D drugs, we do not expect the

Manufacturer Discount Program to have any negative impact on enrollee access or out-of-pocket costs. As noted in section II.C.15 of this final rule, beneficiary protections established under subpart M of part 423 continue to apply and are separate from the Manufacturer Discount Program. Enrollees maintain the right to request a coverage determination from their plan or file a grievance.

Consistent with section 1860D-14C(g)(4) of the Act, applicable discounts under the Manufacturer Discount Program are not counted toward an enrollee's incurred costs. Thus, while we agree that it is important to provide enrollees with accurate and timely information about their benefits and liabilities with respect to their Part D coverage, we are not making any changes to existing policies related to enrollee notification requirements. Part D enrollees will continue to receive information about Part D coverage of their medications through existing vehicles, including the Part D explanation of benefits as required under Sec. 423.128(e).

Comment: A commenter requested that CMS establish timing requirements for plans to submit PDE records.

Response: CMS established deadlines for the timely submission of PDE records at the start of the Part D program, which were recently codified at 42 CFR 423.325. We are finalizing changes to those requirements that are unrelated to the Manufacturer Discount Program in this final rule, which are described in section IV.K.

Comment: A commenter noted the unique integrated financing structure of PACE and urged CMS to monitor implementation of the Manufacturer Discount Program carefully to ensure PACE organizations have the technical support and guidance needed to administer manufacturer discounts.

Response: We appreciate the commenter's feedback and agree that it is important for CMS to monitor implementation of the Manufacturer Discount Program and provide guidance and technical support to PACE organizations. Recognizing that implementation of the Manufacturer Discount Program necessitated significant operational changes for PACE organizations, including reporting an expanded set of data elements on PDE submissions and understanding and developing capabilities related to the dispute resolution process for the Manufacturer Discount Program, CMS issued guidance specific to PACE organizations in HPMS memoranda, titled “PACE Participation in the Manufacturer Discount Program beginning January 1, 2025,” issued on January 26, 2024, and “2025 Prescription Drug Event (PDE) File Layout Updates for all Part D Plan Sponsors, and Additional 2025 Changes to PDE Reporting for PACE Organizations” issued on March 8, 2024. In addition, CMS held multiple technical assistance and training sessions to help PACE organizations prepare for changes related to implementation of the Manufacturer Discount Program.\21\

\21\ CMS provided training sessions for PACE Organizations at two User Group Calls held on February 14, 2024 and May 22, 2024, and also provided training via a presentation and question and answer session at the National PACE Association Spring Policy Forum, on March 11, 2024.

We will continue to issue guidance and support, as needed, regarding the Manufacturer Discount Program, and we encourage interested parties to monitor for additional guidance or information issued through HPMS or posted on our Manufacturer Discount Program web page at https://www.cms.gov/medicare/coverage/prescription-drug-coverage/part-d-information-pharmaceutical-manufacturers. Part D sponsors with questions regarding the Manufacturer Discount Program can reach out to their CMS account manager or submit questions to [email protected].

After consideration of the public comments we received on this section, we are finalizing without modification our proposals at Sec. Sec. 423.505 and 423.2736. 9. Negative Invoice Payment Process for Part D Sponsors (Sec. 423.2740)

In certain instances in the quarterly Manufacturer Discount Program invoicing process (described in section II.C.13.a of this preamble) a Part D sponsor may receive a negative invoice amount. This can occur when a PDE, which had been previously invoiced, is either deleted or adjusted by the plan such that the reported discount amount is less than originally invoiced. A negative invoice amount can be thought of as the amount an agreement holder has overpaid a Part D sponsor in a prior quarter that is now due back to the agreement holder because of the PDE adjustment or deletion. We proposed at Sec. 423.2740 that Part D sponsors must pay such negative invoices in the manner specified by CMS within 38 calendar days of receipt of the invoice, the same timeframe specified in the July 12, 2013 memorandum. A sponsor's failure to pay such a negative invoice within the 38-day deadline may result in CMS taking compliance action in accordance with Sec. 423.505(n).

We received no comments on this section of our proposal. We are finalizing Sec. 423.2740 as proposed. 10. Prospective Payments to Part D Sponsors (Sec. 423.2744) a. General Rule

As discussed in more detail in the preamble to the proposed rule, at Sec. 423.2744(a), CMS proposed to codify existing policies to provide monthly prospective Manufacturer Discount Program payments to Part D sponsors so that sponsors can advance applicable discounts at the point of sale under Sec. 423.2736(a) and reimburse network pharmacies within the timeframe required under Sec. 423.2736(c). b. Exception

As described in section 60.4 of the Manufacturer Discount Program Final Guidance, employer group waiver plans (EGWPs) do not submit Part D bids; therefore, CMS does not have the information necessary to estimate the cost of applicable discounts for these plans and will not provide prospective Manufacturer Discount Program payments to EGWPs. We proposed to codify this exception to the Manufacturer Discount Program prospective payments at Sec. 423.2744(b). However, because manufacturers are required to provide discounts for applicable drugs when dispensed to applicable beneficiaries who are enrolled in an EGWP, EGWPs are required to advance such discounts at the point of sale. The discounts will be invoiced to the manufacturer for reimbursement to the EGWP through the invoicing process at proposed Sec. 423.2756(a). c. Reconciliation

Because prospective discount payments are estimates, Part D sponsors may incur actual Manufacturer Discount Program costs that are greater or less than the prospective payments. To ensure that Part D sponsors are made whole for the manufacturer discount amounts they advanced on behalf of the manufacturer, we proposed at Sec. 423.2744(c) to codify cost-based reconciliation in accordance with subpart G of Part 423 and as implemented under section 60.5 of the Manufacturer Discount Program Final Guidance. d. Manufacturer Bankruptcy

In the event that an agreement holder declares bankruptcy, as described in title 11 of the United States Code, and as a result of the bankruptcy, does not

pay all invoiced amounts due under the requirements of proposed Sec. 423.2756(a), we proposed at Sec. 423.2744(d) to adjust the Manufacturer Discount Program reconciliation amount for each affected Part D sponsor to account for the total unpaid quarterly invoiced amount owed to each Part D sponsor for the contract year being reconciled, as per proposed Sec. 423.2744(c). We proposed to reserve the government's right to file a proof-of-claim and take any other action under bankruptcy law, as appropriate, to attempt to recover such unpaid amounts and any civil money penalties imposed by CMS under these regulations.

Comment: We received a comment on our proposals regarding prospective payments to Part D sponsors. The commenter requested additional guidance on the prospective payment process and the related documentation plans should maintain for tracking, submission for payment, and potential reconciliation. In addition, the commenter encouraged CMS to consider the potential impact of these requirements and stated that it is critical for plan sponsors to receive clear guidance to minimize administrative burden and ensure EGWPs remain a viable option for plan sponsors.

Response: CMS thanks the commenter for their feedback. As described in our proposed rule, prospective Manufacturer Discount Program payments to Part D sponsors will be based on the projections included in each plan's bid and on current enrollment. Under this process, CMS estimates the per member per month cost of the manufacturer discounts for each plan based on a percentage of the cost assumptions submitted with plan bids under Sec. 423.265 and negotiated and approved under Sec. 423.272, adjusted as necessary to account for applicable drug costs for applicable beneficiaries. CMS then multiplies the plan's manufacturer discount estimate by the number of beneficiaries enrolled in the plan and distributes the prospective Manufacturer Discount Program payments to plans on the first of each month. The Manufacturer Discount Program payments are reflected as a separate line item on each plan's Monthly Membership Detail Reports and included in the Part D payments displayed on the Monthly Membership Summary Reports. As we explained in the proposed rule, when manufacturers pay their quarterly Manufacturer Discount Program invoices, sponsors will appear to have a temporary duplicate payment from two sources, the manufacturer and CMS, for the same expense. After receiving payment from the manufacturer, the Part D sponsor no longer needs the cash flow advance from the prospective Manufacturer Discount Program payment. Therefore, CMS will offset the monthly prospective Manufacturer Discount Program payment, with the offset amount being equal to the total manufacturer discount amount received by the Part D sponsor from the manufacturer in the previous quarter. Document retention requirements for Part D sponsors are specified at Sec. 423.505(d) and described in section IV.D. of this final rule. At this time, we do not believe additional CMS guidance is necessary. We encourage interested parties to monitor for additional guidance or information issued through HPMS or posted on our Manufacturer Discount Program web page at https://www.cms.gov/medicare/coverage/prescription-drug-coverage/part-d-information-pharmaceutical-manufacturers. Part D sponsors with questions regarding the Manufacturer Discount Program can reach out to their CMS account manager or submit questions to [email protected].

CMS acknowledges the commenter's concern regarding the impact of requirements on Part D sponsors generally and EGWPs more specifically. With respect to prospective Manufacturer Discount Program payments and the exception for EGWPs, because EGWPs are not subject to typical Part D bidding requirements due to a longstanding waiver by CMS, they do not submit Part D bids. As such, CMS lacks the information necessary to estimate the cost of applicable discounts for these plans.

After consideration of the comments received, we are finalizing proposed Sec. 423.2744 without modification. 11. Requirement To Use the Health Plan Management System (Sec. 423.2748)

At Sec. 423.2748, we proposed to codify requirements related to use of the Health Plan Management System (HPMS) that were included in the Manufacturer Discount Program Final Guidance. Specifically, we proposed that agreement holders are required to maintain HPMS access and use the HPMS to--

Provide and maintain required information, as specified by CMS;

Attest to the completeness and accuracy of the data necessary for CMS to determine whether the manufacturer qualifies as a specified manufacturer or specified small manufacturer, as described at Sec. 423.2716;

Execute a Manufacturer Discount Program agreement and a TPA agreement; and

As otherwise specified by CMS to administer the program.

We did not receive any comments regarding this section of our proposal. We are finalizing Sec. 423.2748 without modification. 12. Manufacturer Discount Program Agreement (Sec. 423.2752)

Section 1860D-14C(a) of the Act requires CMS to enter into Manufacturer Discount Program agreements with manufacturers in order for manufacturers to participate in the Manufacturer Discount Program. CMS released the Manufacturer Discount Program agreement template on November 17, 2023. The burden associated with executing the agreement and related requirements is currently approved under OMB control number 0938-1451 (CMS-10846) through December 31, 2028. We proposed to codify the requirements for the Manufacturer Discount Program agreement at Sec. 423.2752. a. Requirements of Agreement

As discussed in more detail in section II.C.4. of this preamble, CMS is finalizing at Sec. 423.2708(b) the requirement that a manufacturer is considered to participate in the Manufacturer Discount Program and to have entered into and have in effect a Manufacturer Discount Program agreement, as required under section 1860D-43(a) of the Act, if such manufacturer executes and has in effect its own Manufacturer Discount Program agreement or participates by means of an arrangement whereby its labeler code(s) is covered by another manufacturer's Manufacturer Discount Program agreement that is in effect. As discussed in the preamble to the proposed rule, only a manufacturer that is an agreement holder (as defined in Sec. 423.2708) is a party to such agreement with CMS, and the entity subject to the rights and obligations of such agreement. In accordance with this framework, the requirements we proposed at Sec. 423.2752 related to the Manufacturer Discount Program agreement apply only to manufacturers that are agreement holders. Pursuant to section 1860D-14C(b) of the Act, we proposed at Sec. 423.2752(a) that the Manufacturer Discount Program agreement require, at a minimum, each agreement holder to:

Reimburse, within the required 38-day timeframe, all applicable discounts provided by Part D sponsors on behalf of the manufacturer for applicable drugs dispensed on or after January 1, 2025 that have an NDC with a labeler code that is covered by the manufacturer's

Manufacturer Discount Program agreement and invoiced to the manufacturer. As proposed at Sec. 423.2756(b)(2), when an invoice deadline falls on a Saturday, Sunday, or legal holiday, the payment timeframe is extended to the first day thereafter which is not a Saturday, Sunday, or legal holiday.

Provide CMS with all labeler codes covered by its Manufacturer Discount Program agreement.

Ensure that the labeler codes provided to CMS include, at a minimum, all labeler codes assigned by the FDA to the manufacturer that contain NDCs for any of the manufacturer's applicable drugs or selected drugs, and promptly update CMS with any labeler codes newly assigned to the manufacturer by the FDA that contain NDCs for any of the manufacturer's applicable drugs or selected drugs in accordance with the timing requirements discussed later in this section and proposed at Sec. 423.2756(c)(3) for newly assigned labeler codes.

Comply with the requirements established by CMS for purposes of administering the Manufacturer Discount Program and monitoring compliance with such program, including providing the manufacturer's Employer Identification Number (EIN) and other identifying information to CMS upon request.

Comply with the requirements related to the provision and maintenance of data, including collecting, maintaining, and reporting appropriate data related to the labeler codes covered by its agreement and any other data CMS determines necessary to carry out the Manufacturer Discount Program and demonstrate compliance with its requirements.

Enter into and have in effect, under the terms and conditions specified by CMS, an agreement with the TPA and comply with such agreement and all TPA instructions, processes, and requirements.

Provide and attest to information, as specified by CMS, necessary for CMS to determine eligibility for, and implement, the specified manufacturer and specified small manufacturer phase-in discounts.

Agree that, no less than 30 days after the date CMS determines that a primary manufacturer of a selected drug has, in accordance with proposed Sec. 423.2752(c)(1)(ii), provided notice to CMS of its decision not to enter into or continue its participation in the Medicare Drug Price Negotiation Program and to discontinue its applicable agreements under the Medicaid Drug Rebate Program and the Manufacturer Discount Program, none of the drugs of such primary manufacturer will be covered by the manufacturer's Manufacturer Discount Program agreement.

Comply with all other requirements of the Manufacturer Discount Program. b. Term and Renewal

Consistent with section 1860D-14C(b)(4)(A) of the Act, Manufacturer Discount Program agreements are valid for an initial term of not less than 12 months, and automatically renew for a period of 1 year on each subsequent January 1, except as described later in this section, unless terminated as described in section II.C.12.c. of this final rule. Consistent with the policies CMS established in the Manufacturer Discount Program Final Guidance, we proposed to codify the requirements related to Manufacturer Discount Program agreement term and renewal at Sec. 423.2752(b). c. Termination of Agreement (1) Termination by CMS

Under section 1860D-14C(b)(4)(B)(i) of the Act, CMS may terminate a Manufacturer Discount Program agreement for a knowing and willful violation of the requirements of the agreement or other good cause shown in relation to a manufacturer's participation in the Manufacturer Discount Program. The statute also specifies that a termination by CMS will not be effective earlier than 30 calendar days after the date of notice to the manufacturer of such termination. We proposed to codify the policies for termination by CMS at Sec. 423.2752(c)(1).

Consistent with applicable guidance for the Medicare Drug Price Negotiation Program,\22\ a manufacturer that is a primary manufacturer, as defined at Sec. 423.2704, may submit a request for termination of a Manufacturer Discount Program agreement in connection with a notice of its decision that it is unwilling to participate in, or continue its participation in, the Medicare Drug Price Negotiation Program.

\22\ See, for example, sections 40.1 and 40.6, as applicable, of the June 30, 2023 Medicare Drug Price Negotiation Program Revised Guidance, Implementation of Sections 1191-1198 of the Social Security Act for Initial Price Applicability Year 2026, available at https://www.cms.gov/files/document/revised-medicare-drug-price-negotiation-program-guidance-june-2023.pdf; the October 2, 2024 Medicare Drug Price Negotiation Program: Final Guidance, Implementation of Sections 1191--1198 of the Social Security Act for Initial Price Applicability Year 2027 and Manufacturer Effectuation of the Maximum Fair Price in 2026 and 2027, available at https://www.cms.gov/files/document/medicare-drug-price-negotiation-final-guidance-ipay-2027-and-manufacturer-effectuation-mfp-2026-2027.pdf; and the September 30, 2025 Medicare Drug Price Negotiation Program: Final Guidance, Implementation of Sections 1191-1198 of the Social Security Act for Initial Price Applicability Year 2028 and Manufacturer Effectuation of the Maximum Fair Price in 2026, 2027, and 2028, available at https://www.cms.gov/files/document/ipay-2028-final-guidance.pdf.

Specifically, a manufacturer that is the primary manufacturer of a selected drug may provide a notice to CMS stating the primary manufacturer's unwillingness to participate in, or its request to terminate an agreement under, the Medicare Drug Price Negotiation Program (herein referred to as a “Request to Terminate”). In accordance with applicable regulations and guidance for the Medicare Drug Price Negotiation Program, such Request to Terminate must incorporate both: (1) a request for termination of the primary manufacturer's applicable agreements under the Medicaid Drug Rebate Program and the Manufacturer Discount Program, consistent with the requirements as set forth in 26 U.S.C. 5000D(c)(1)(A)(i); and (2) an attestation that provides in part that through the end of the price applicability period (as defined in section 1191(b)(2) of the Act) for the selected drug that the primary manufacturer (i) shall not seek to enter into any subsequent agreement with the Manufacturer Discount Program under section 1860D-14C of the Act; and (ii) shall not seek coverage for any of its drugs under the Manufacturer Discount Program under section 1860D-14C of the Act, consistent with the requirements set forth in 26 U.S.C. 5000D(c)(1)(B). If CMS determines the primary manufacturer's Request to Terminate complies with applicable requirements, the primary manufacturer's request will constitute good cause under section 1860D-14C(b)(4)(B)(i) of the Act to terminate the primary manufacturer's applicable agreements under the Manufacturer Discount Program in accordance with the proposed Sec. 423.2752(c)(1)(ii) and the proposed Sec. 423.2752(c)(1)(v)(A)(1), as applicable.\23\ CMS also will terminate coverage for all of the drugs of the

primary manufacturer under the Manufacturer Discount Program in accordance with proposed Sec. 423.2752(c)(1)(v)(A)(2), as discussed in more detail later in this section.

\23\ 26 U.S.C. 5000D(c)(2), as enacted by section 11003 of the IRA, defines “applicable agreement.” In the context of the Manufacturer Discount Program, the primary manufacturer's applicable agreements include any Manufacturer Discount Program agreement for which the primary manufacturer is the agreement holder, as well as any arrangement in which FDA-assigned labeler code(s) of the primary manufacturer is/are covered under the Manufacturer Discount Program agreement of another manufacturer. If the primary manufacturer's Request to Terminate complies with applicable requirements, CMS will effectuate removal of only the previously described FDA-assigned labeler code(s) from the Manufacturer Discount Program agreement of another manufacturer.

Consistent with the requirement in section 1860D-14C(b)(4)(B)(i) of the Act and the termination policies established in section 80.1.3.1 of the Manufacturer Discount Program Final Guidance, CMS will provide, upon written request, a manufacturer a hearing concerning a termination by CMS. This hearing will take place prior to the effective date of the termination with sufficient time for the termination to be repealed prior to the effective date if CMS determines repeal would be appropriate. If a manufacturer or CMS receives an unfavorable decision from the hearing officer, the manufacturer or CMS may request review by the CMS Administrator within 30 calendar days of receipt of the notification of such determination. The decision of the CMS Administrator is final and binding. A timely request for a hearing before a hearing officer or review by the CMS Administrator will stay termination until the parties have exhausted their appeal rights under the Manufacturer Discount Program, which means either the timeframes to pursue a hearing before a hearing officer or review by the CMS Administrator have passed or a final decision by the Administrator has been issued and there is no remaining opportunity to request further administrative review. We proposed to codify these policies regarding hearings at Sec. 423.2752(c)(1)(iv)(A) and (B).

In the case of a primary manufacturer of a selected drug under the Medicare Drug Price Negotiation Program that is unwilling to enter into a Medicare Drug Price Negotiation Program agreement or continue its participation in the Medicare Drug Price Negotiation Program and submits a Request to Terminate that complies with all applicable requirements, CMS shall, upon written request from such primary manufacturer, provide a hearing concerning the termination of the primary manufacturer's applicable agreements under the Manufacturer Discount Program, in accordance with section 1860D-14C(b)(4)(B)(i) of the Act. Such a hearing will be held prior to the effective date of termination with sufficient time for such effective date to be repealed. Such a hearing will be held solely on the papers. CMS's determination that there is good cause for termination depends solely on the primary manufacturer's request for termination to effectuate its decision not to participate in or to terminate its participation in the Medicare Drug Price Negotiation Program. Therefore, the only question to be decided in the hearing is whether the primary manufacturer has asked to rescind its Request to Terminate prior to the effective date of the termination. CMS will automatically grant such request from the primary manufacturer to rescind its Request to Terminate. We proposed to codify these policies at Sec. 423.2752(c)(1)(iv)(C).

If CMS determines that a primary manufacturer's Request to Terminate complies with all applicable requirements, we will effectuate the removal of the FDA-assigned labeler code(s) of the primary manufacturer from all Manufacturer Discount Program agreements for which the primary manufacturer is not the agreement holder no earlier than 30 days from the date we send the notice of termination to the manufacturer in accordance with proposed Sec. 423.2752(c)(1)(iii).

We proposed to codify this requirement at Sec. 423.2752(c)(1)(v)(A)(1).

Similarly, CMS will effectuate the termination of coverage under any Manufacturer Discount Program agreement specific to NDCs of all applicable drugs and selected drugs for which the primary manufacturer is the holder of the new drug application or biologics license application. Such termination of coverage under this provision will apply to all applicable drug and selected drug NDCs of the primary manufacturer for which the labeler code is assigned to a manufacturer other than the primary manufacturer and for which the primary manufacturer is the new drug application or biologics license application holder for such drug. We proposed to codify this requirement at Sec. 423.2752(c)(1)(v)(A)(2).

At Sec. 423.2752(c)(1)(v)(B), we proposed to clarify that, consistent with the requirement at Sec. 423.2752(c)(3) discussed below, the removal of labeler code(s) in accordance with Sec. 423.2752(c)(1)(v)(A)(1) and the termination of coverage specific to NDCs in accordance with Sec. 423.2752(c)(1)(v)(A)(2) do not affect the agreement holder's responsibility to reimburse Part D sponsors for applicable discounts for applicable drugs with such labeler code(s) or such NDCs that were incurred under the agreement before the effective date of removal or termination. (2) Termination by the Manufacturer

In accordance with section 1860D-14C(b)(4)(B)(ii) of the Act, an agreement holder may terminate its Manufacturer Discount Program agreement for any reason. Under the policies established in section 80.1.3.2 of the Manufacturer Discount Program Final Guidance, if the manufacturer provides notice of termination under section 1860D- 14C(b)(4)(B)(ii) of the Act before January 31 of a calendar year, such termination will be effective as of January 1 of the succeeding calendar year. If the manufacturer provides such notice of termination on or after January 31 of a calendar year, the termination will be effective as of January 1 of the second succeeding calendar year.

We proposed to codify these existing policies at Sec. 423.2752(c)(2). (3) Post-Termination Obligations

Consistent with section 1860D-14C(b)(4)(B)(iii) of the Act, the termination of a Manufacturer Discount Program agreement under either sections 1860D-14C(b)(4)(B)(i) or 1860D-14C(b)(4)(B)(ii) of the Act will not affect the manufacturer's responsibility to reimburse Part D sponsors for applicable discounts for applicable drugs having NDCs with labeler code(s) covered by the manufacturer's agreement that were incurred under the agreement before the effective date of termination.

We proposed to codify this requirement at Sec. 423.2752(c)(3). (4) Reinstatement

As described in section 80.1.4 of the Manufacturer Discount Program Final Guidance, reinstatement in the Manufacturer Discount Program subsequent to termination by CMS will be available to a manufacturer only upon payment of all outstanding applicable discounts and penalties incurred under any previous Manufacturer Discount Program agreement or Coverage Gap Discount Program agreement. The timing of any such reinstatement will be consistent with the requirements for entering into an agreement under proposed Sec. 423.2752(b).

We proposed to codify this policy at Sec. 423.2752(c)(4). (5) Automatic Assignment Upon Change of Ownership

At Sec. 423.2752(d) we proposed to codify the requirements of section 80.5.1 of the Manufacturer Discount Program Final Guidance and section (VIII)(b) of the Manufacturer Discount Program agreement, that in the event of a change in ownership of a manufacturer that is an agreement holder, the Manufacturer Discount Program agreement is automatically assigned to the new owner, and all terms and conditions of the agreement remain in effect as to the new owner

unless terminated in accordance with requirements at Sec. 423.2752(c). Further, we proposed that the new agreement holder would agree to be bound by and to perform all the duties and responsibilities under the Manufacturer Discount Program, and assume all obligations and liabilities of, and all claims incurred against, the prior agreement holder under the Manufacturer Discount Program agreement whether arising before or after the effective date of the change of ownership.

CMS did not receive any comments on our proposals in this section. We are finalizing the provisions of Sec. 423.2752 with a minor clarifying change at paragraph (c)(1)(v)(A)(2) to clarify that the termination of coverage described in paragraph (c)(1)(v)(A)(2) is specific to the termination of coverage “under paragraph (2)”. 13. Manufacturer Requirements (Sec. 423.2756)

We proposed that manufacturers that are agreement holders, as defined at Sec. 423.2704, must comply with all requirements at Sec. 423.2756. a. Manufacturer Invoicing

At Sec. 423.2756(a), CMS proposed that we will calculate, based on information reported by Part D sponsors, the amounts owed for applicable discounts for applicable drugs having NDCs with a labeler code covered by an agreement holder's Manufacturer Discount Program agreement and will invoice the agreement holder quarterly. We also proposed that CMS will invoice manufacturer discount amounts from accepted PDE data for 37 months following the end of the benefit year.

As we explained in the preamble to the proposed rule, CMS includes the following detail on Manufacturer Discount Program invoices:

Date of service;

Service provider identifier qualifier;

Service provider identifier;

Prescription/service reference number;

Product/service identifier;

Quantity dispensed;

Days supply;

Fill number;

Reported discount;

Low-income cost sharing amount;

Total gross covered drug cost accumulator;

True out-of-pocket accumulator;

Gross drug cost below out-of-pocket threshold; and

Gross drug cost above out-of-pocket threshold. b. Requirement for Timely Payment

At Sec. 423.2756(b) CMS proposed to codify the requirements for timely payment of manufacturer discounts. Specifically, at Sec. 423.2756(b)(1) we proposed that agreement holders must pay each Part D sponsor invoiced amounts no later than 38 calendar days from receipt of the relevant invoice, with limited exceptions in proposed paragraphs (b)(2) and (b)(3). At Sec. 423.2756(b)(2), we proposed that if an invoice deadline falls on a Saturday, Sunday, or legal holiday, the payment timeframe is extended to the first day thereafter which is not a Saturday, Sunday, or legal holiday.

At Sec. 423.2756(b)(3), we proposed that agreement holders are not permitted to withhold payment for any disputed invoiced amount, including while a dispute is pending, except when the basis for the dispute is that the agreement holder has been invoiced amounts for applicable drugs that have NDCs that do not correspond to labeler codes covered by the agreement holder's Manufacturer Discount Program agreement. We further proposed that if payment is withheld in such an instance, the agreement holder must notify the TPA within 38 calendar days of the manufacturer's receipt of the applicable invoice that payment is being withheld for this reason.

As discussed in the preamble to the proposed rule, this payment withholding rule is consistent with processes established in section 80.2.3 of the Manufacturer Discount Program Final Guidance, and we believe it strikes a reasonable balance between the needs of manufacturers and Part D sponsors. CMS performs extensive quality assurance with respect to PDE data submitted by sponsors and we believe that prohibiting the withholding of disputed invoices minimizes the risk to Part D sponsors for these discount-related incurred liabilities without significantly increasing the financial risk to a manufacturer. The PDE data used to calculate quarterly invoices are derived from claims for each prescription submitted to Part D sponsors for payment. Part D sponsors validate each claim as part of their process to reimburse pharmacies for the cost of the drug. In addition, CMS applies multiple edits to validate the PDE data submitted by Part D sponsors. Those edits include identification and adjustment of outlier and other erroneous entries for variables, such as discount amount, beneficiary eligibility for the discount, and NDCs. c. Reporting Requirements

At paragraph (c)(1) of Sec. 423.2756, we proposed that, in general, agreement holders must collect, have available, and maintain appropriate data related to the labeler codes covered by their Manufacturer Discount Program agreement. This includes FDA drug approvals, FDA NDC Directory listings, NDC last-lot expiration dates, utilization and pricing information relied on by the manufacturer to dispute quarterly invoices, and any other data CMS determines necessary to carry out the Manufacturer Discount Program and demonstrate compliance with its requirements. We also proposed that manufacturers maintain such data as described previously for a period of not less than 10 years from the date of payment of the corresponding invoice.

At Sec. 423.2756(c)(2), we proposed requirements related to providing information to CMS about manufacturer ownership. Specifically, at paragraph (c)(2)(i), we proposed to require agreement holders to provide and attest to ownership and other data, in the form and manner specified by CMS, as necessary for CMS to determine eligibility for discount phase-ins for specified manufacturers and specified small manufacturers in accordance with statutory requirements, as we proposed to codify at Sec. 423.2716. Likewise, at paragraph (c)(2)(iii), we proposed that if the agreement holder covers the FDA-assigned labeler code(s) of another manufacturer by its Manufacturer Discount Program agreement, the agreement holder would also be required to provide ownership information about such other manufacturer.

As we explained in the proposed rule, it is also imperative that CMS be notified promptly of any ownership changes of a manufacturer participating in the Manufacturer Discount Program so that we can evaluate such changes as they relate to the application of discount phase-ins, including the acquisition policy under proposed Sec. 423.2724. At Sec. 423.2756(c)(2)(ii), we proposed to codify our longstanding policy that agreement holders notify us of a change in their ownership no later than 30 calendar days after the agreement holder executes a legal obligation for such an arrangement and no later than 45 calendar days prior to the change in ownership taking effect. At Sec. 423.2756(c)(2)(iii) we proposed a corresponding requirement that, if an agreement holder covers the labeler code(s) of another manufacturer by its Manufacturer Discount Program agreement, the agreement holder must

notify us of a change in ownership of such other manufacturer.

If CMS is not notified of an ownership change, the original agreement holder will be invoiced and payment will have to be reconciled between the manufacturers involved in the transaction. CMS will not consider untimely notice of a change of ownership to be grounds for an agreement holder to dispute the invoiced amount.

At Sec. 423.2756(c)(3), we proposed requirements related to labeler codes. Consistent with the Manufacturer Discount Program Final Guidance, section 80.5.2, we proposed at Sec. 423.2756(c)(3)(i) that each agreement holder must cover by its agreement all labeler codes assigned by the FDA to the agreement holder that contain NDCs for the agreement holder's applicable drugs and selected drugs. We also proposed at Sec. 423.2756(c)(3)(ii) that, consistent with Sec. 423.2708(b)(2), an agreement holder may cover by its Manufacturer Discount Program agreement applicable drugs or selected drugs with labeler code(s) assigned by the FDA to another manufacturer, provided the other manufacturer has not executed and does not have in effect its own Manufacturer Discount Program agreement in accordance with Sec. 423.2708(b)(1).

We proposed that agreement holders must provide to CMS and maintain all required labeler code information as instructed by CMS. Specifically, we proposed at Sec. 423.2756(c)(3)(iii) to require agreement holders to provide to CMS the following labeler code information:

All labeler codes assigned by the FDA to the agreement holder that contain NDCs for the agreement holder's applicable drugs and selected drugs; and

All labeler codes assigned by the FDA to another manufacturer that the agreement holder covers by its agreement and for which the agreement holder agrees to pay discounts.

We also proposed at Sec. 423.2756(c)(3)(iv) that agreement holders must provide labeler codes newly assigned by the FDA to the agreement holder to CMS no later than 3 business days after receiving written notification of the newly assigned labeler code(s) from the FDA and in advance of providing any NDCs associated with such labeler codes to electronic database vendors.

As proposed at Sec. 423.2756(c)(3)(v), agreement holders are responsible for maintaining the list of labeler codes covered by their agreement to ensure that it remains current on an ongoing basis. An agreement holder's failure to update labeler codes covered by its agreement does not change the agreement holder's responsibility to pay the amounts invoiced for applicable drugs. Specific instructions on how agreement holders are to submit information to CMS are available in the HPMS Drug Manufacturer Management User Manual.

As part of maintaining the list of labeler codes covered by their Manufacturer Discount Program agreement, agreement holders should submit a request in HPMS to terminate labeler codes where all of the NDCs are past the last lot expiration date. In order to submit the request, the agreement holder must attest in HPMS that the marketing end date on the FDA NDC SPL Data Elements file, defined by the FDA as the date of expiration of the last lot released to the marketplace, has passed for all applicable drugs and selected drugs associated with the labeler code. Termination of labeler codes where all of the NDCs are past the last lot expiration date differs from the process proposed at Sec. 423.2752(c)(1)(v), which applies to the CMS termination of labeler codes and NDCs of a primary manufacturer and is described in section II.C.12.c. of this preamble.

At Sec. 423.2756(c)(4), we proposed requirements related to maintenance of FDA records and related records. CMS relies on data available through the FDA to identify applicable drugs in the Manufacturer Discount Program. Accordingly, we proposed at Sec. 423.2756(c)(4)(i)(A) that agreement holders must ensure that all labeler codes assigned by the FDA to the agreement holder that contain NDCs for any of its applicable drugs or selected drugs are properly listed on the FDA NDC Directory. We proposed at Sec. 423.2756(c)(4)(i)(B) that agreement holders must electronically list all NDCs of their applicable drugs or selected drugs with the FDA in advance of commercial distribution of the product(s) so that CMS and plans can accurately identify applicable drugs once they are provided to pharmacies for distribution. Further, CMS proposes at Sec. 423.2756(c)(4)(i)(C) that agreement holders must maintain up-to-date electronic FDA registrations and listings of all NDCs, including the timely removal of discontinued NDCs from the FDA NDC Directory. Accurate NDC listings enable CMS and Part D sponsors to accurately identify applicable drugs. For this reason, updates to the FDA NDC Directory must precede NDC additions made to commercial electronic databases used for pharmacy claims processing.

In addition, we proposed at Sec. 423.2756(c)(4)(i)(D) that agreement holders must maintain up-to-date listings with the electronic database vendors to whom they provide their NDCs for pharmacy claims processing. This includes ensuring that these electronic database vendors are prospectively notified when NDCs no longer represent products that are still available on the market. A manufacturer's failure to provide appropriate advance notice to electronic database vendors may result in the agreement holder being responsible for discounts after the last-lot expiration date unless the manufacturer can document that it provided such appropriate advance notice to the database vendors, or the manufacturer has provided advance notice to the FDA of the marketing end date.

At Sec. 423.2756(c)(4)(ii), we proposed that if an agreement holder's Manufacturer Discount Program agreement covers labeler code(s) that are assigned by the FDA to another manufacturer that participates in the Manufacturer Discount Program in accordance with Sec. 423.2708(b)(2), the agreement holder must ensure that the requirements of this section are met with respect to such labeler codes.

At Sec. 423.2756(d), we proposed to codify existing CMS policy that permits agreement holders to transfer labeler code(s) between Manufacturer Discount Program agreements so long as the transfer is consistent with requirements of the proposed subpart AA and the Manufacturer Discount Program agreement and is approved by CMS. As explained in the proposed rule, transfers of labeler codes from one Manufacturer Discount Program agreement to another are not considered complete until CMS has approved both requests. The agreement holder seeking to transfer the labeler code from its agreement remains liable for payment of all discounts related to such labeler code until the transfer is complete. An agreement holder is not permitted to transfer its own FDA-assigned labeler code(s) to the Discount Program agreement of another manufacturer.

Once the transfer is complete, the receiving agreement holder assumes responsibility for all Manufacturer Discount Program requirements with respect to the transferred labeler code(s). Manufacturer Discount Program invoices to the receiving agreement holder include the discount amounts by labeler code for the entire quarter. If an agreement holder assumes liability for a labeler code effective the second or third month of a quarter, that agreement holder will be invoiced and is

responsible for all discount amounts of that labeler code for the entire quarter, including any claims from dates of service in prior quarters that are included on that quarter's invoice.

In the event that business needs do not coincide with the timing of the transfer, agreement holders are expected to reconcile any payments among themselves without CMS involvement.

The transfer of a labeler code between Manufacturer Discount Program agreements includes all NDCs associated with the transferred labeler code; CMS will not transfer individual NDCs.

Comment: We received a few comments regarding the data elements CMS provides on Manufacturer Discount Program invoices. The commenters thanked CMS for expanding the data provided to manufacturers compared to what was provided under the Coverage Gap Discount Program. A few commenters supported codifying the Manufacturer Discount Program invoice data elements.

The commenters also recommended that CMS expand the set of data elements currently provided on manufacturer invoices, arguing that additional data fields are necessary for manufacturers to accurately verify Manufacturer Discount Program discounts. In combination, these commenters asked that CMS add the following additional data elements to Manufacturer Discount Program invoices: Part D contract and Part D plan benefit package identifiers; a de-identified Part D beneficiary identifier; the prescriber's National Provider Identifier; the date the Part D plan paid the pharmacy; claim status (i.e., whether the claim was paid or reversed); a Medicare Prescription Payment Plan participation identifier; information about the indication for which the drug was prescribed; and various cost accumulator fields to identify an enrollee's actual out-of-pocket costs and where the enrollee falls in the phases of the Part D benefit.

Response: We appreciate the commenters' support and acknowledgement of CMS's decision at the start of the Manufacturer Discount Program to include additional data elements on manufacturer invoices. As commenters recognized, the current data elements included on invoices provide manufacturers with more data than they received on invoices under the Coverage Gap Discount Program. However, we disagree with the commenters that additional data elements are necessary or would be beneficial. We are not persuaded by the comments to add any of the additional data elements requested. We believe the current data elements included on invoices appropriately balance important beneficiary privacy protection and sufficient information for agreement holders to meet their statutory obligation to provide discounted prices for applicable drugs under section 1860D-14C(b)(1)(A) of the Act. We further clarify that we did not propose to enumerate in the regulation text which specific data elements are included on Manufacturer Discount Program invoices.

As discussed in the Manufacturer Discount Program Final Guidance and the preamble to the proposed rule, in providing the invoice data, CMS seeks to limit the disclosure of claim-level information to the minimum necessary for an agreement holder to verify payment. Pursuant to section II(l) and section (b)(1) of Exhibit C of the Manufacturer Discount Program agreement, information sent from CMS or the TPA to the agreement holder with each quarterly invoice may be used only for evaluating the accuracy of the invoiced discounts and resolving disputes concerning the manufacturer's payment obligations under the Manufacturer Discount Program.

Manufacturers should consider that prior to invoicing under the Manufacturer Discount Program, CMS performs extensive editing on PDE records and conducts outlier analyses to check for duplicate claims, applicable national drug codes (NDCs), and incorrect discount calculations, among other checks. Detailed information on the PDE submission process, including on CMS's robust PDE editing process, can be found on the Customer Service and Support Center (CSSC) website.\24\

\24\ https://www.csscoperations.com/internet/csscw3.nsf.

After consideration of the comments received, we are finalizing Sec. 423.2756 as proposed. 14. Audits (Sec. 423.2760)

We proposed to codify at Sec. 423.2760 the Manufacturer Discount Program audit processes established in section 90 of the Manufacturer Discount Program Final Guidance.

Regarding manufacturer audits of TPA data, we proposed at Sec. 423.2760(a)(1) that an agreement holder may conduct audits, directly or through third parties and no more often than annually, of TPA data and information used to determine discounts for applicable drugs covered under the agreement holder's Manufacturer Discount Program agreement. We proposed at Sec. 423.2760(a)(2) that the agreement holder must provide 60 calendar days' notice to the TPA of the reasonable basis for the audit and a description of the information required for the audit.

As discussed in the preamble to the proposed rule, when developing audit processes for the Manufacturer Discount Program Final Guidance, CMS considered feedback from interested parties. In response to this feedback and in alignment with section 90.1.2 of the Manufacturer Discount Program Final Guidance, CMS provides the following data to agreement holders that are auditing TPA data, in addition to the data elements included on invoices:

Contract number;

Plan benefit package identifier;

Ingredient cost paid;

Dispensing fee paid;

Total amount attributed to sales tax;

Non-covered plan paid amount; and

Vaccine administration fee or additional dispensing fee.

We proposed limits on audits of TPA data and information at Sec. 423.2760(a)(3). Specifically, we proposed at Sec. 423.2760(a)(3)(i) that the data provided to the manufacturer conducting the audit be limited to a statistically significant random sample of data held by the TPA that were used to determine applicable discounts for applicable drugs having NDCs with labeler codes covered by the agreement holder's Manufacturer Discount Program agreement. At Sec. 423.2760(a)(3)(ii), we proposed that manufacturers are not permitted to audit CMS records or the records of Part D sponsors beyond the data provided to the TPA, which includes claim-level information.

At Sec. 423.2760(a)(3)(iii), we proposed that audits must occur on site at a location specified by the TPA, and with the exception of work papers, audit data cannot be removed from the audit site. Additionally, we proposed at Sec. 423.2760(a)(3)(iv) that the auditor may release only an opinion of the audit results and is prohibited from releasing any other information obtained from the audit, including work papers, to its client, employer, or any other party. CMS believes these limitations on the distribution of data support beneficiary privacy, while addressing manufacturer need for access to data that are relevant to the calculation of the discounts.

Regarding CMS audits of manufacturer data, we proposed at Sec. 423.2760(b)(1) that an agreement holder is subject to periodic audit by CMS no more often than annually, directly or through third parties. We proposed at Sec. 423.2760(b)(2) that CMS must provide agreement holders with 60

calendar days' notice of the reasonable basis for the audit and a description of the information required for the audit. We further proposed at Sec. 423.2760(b)(3) that CMS has the right to audit appropriate data, including data related to labeler codes covered by the agreement holder's Manufacturer Discount Program agreement and related NDC last-lot expiration dates, utilization, and pricing information relied on by the agreement holder to dispute quarterly invoices, and any other data CMS determines necessary to evaluate compliance with the requirements of the Manufacturer Discount Program.

Comment: A commenter requested that CMS remove the requirement that audits be conducted on site only, because the requirement imposes a significant burden on the manufacturer, including travel time and expenses. The commenter suggested that CMS allow manufacturers to access audit data through a secure online portal overseen by the TPA.

Response: We thank the commenter for their feedback. Regarding allowing manufacturer audits of TPA data to be conducted remotely, CMS intends to continue exploring with the TPA ways in which remote audits might be conducted in the future. While we do not expect remote auditing of the TPA to be in place by CY 2027, in order to allow for the possibility of remote audits in the future, we are striking the words “on site” and “the audit site” from the proposed regulation text at Sec. 423.2760(a)(3)(iii) that specified that audits must occur on site at a location specified by the TPA and that data cannot be removed from the audit site. As modified, the regulatory text requires that audits must occur at “a location specified by the TPA” and that data cannot be removed from “such specified location”. CMS and the TPA may specify through future guidance whether an audit will be conducted on site or remotely at a virtual location. Until CMS establishes and operationalizes a secure method for allowing manufacturers to conduct remote audits of TPA data, audits will continue to occur on site at a physical location specified by the TPA.

Comment: The same commenter urged CMS to clarify the limitation on an auditor sharing information beyond its opinion of the audit results with its client and specifically permit the manufacturer to review all data underlying an audit conducted on its behalf. The commenter also requested that CMS permit manufacturers to audit CMS records and the records of Part D sponsors beyond the data provided to the TPA, including any data CMS would use to audit the selected drug subsidy under proposed Sec. 423.329(e) .

Response: We disagree with these comments. As previously noted, CMS believes that the limitations on distribution of audit data strike the appropriate balance between supporting beneficiary privacy and ensuring manufacturer access to data relevant to the calculation of discounts.

Regarding manufacturer audits of information beyond the data provided to the TPA, we note that section 1860D-14A(d)(3)(D) of the Act permitted manufacturers to conduct periodic audits “of the data and information used by the third party to determine discounts” under the Coverage Gap Discount Program. There is no statutory requirement under the Manufacturer Discount Program to permit manufacturers to audit any data or information used to determine discounts. We chose to carry over this policy because we continue to utilize a TPA to facilitate administration of the program. While manufacturers can dispute invoiced discounts through the process described at Sec. 423.2764, which may involve CMS review of data beyond what is provided by the TPA, including consultation with Part D sponsors, we believe that data available to manufacturers under our proposed rule is sufficient for manufacturers to validate invoiced discounts. We decline to permit manufacturers to audit information beyond the data provided to the TPA.

After consideration of the comments received, we are finalizing Sec. 423.2760 with modification, as described in our response to comments. Specifically, we are striking the words “on site,” “such,” and “the audit site” from the proposed regulation text at Sec. 423.2760(a)(3)(iii), and we are modifying the regulatory text to specify that “audit” data cannot be removed from “such specified location”. We are also adding the word “calendar” to convey 60 calendar days at Sec. 423.2760(a)(2), which was inadvertently left out of the regulation text in the proposed rule. 15. Dispute Resolution (Sec. 423.2764)

At Sec. 423.2764, CMS proposed a 3-level dispute resolution framework through which agreement holders can dispute applicable discounts that they were invoiced via the invoicing process at Sec. 423.2756(a). Specifically, we proposed at Sec. 423.2764(a) that an agreement holder may dispute applicable discounts invoiced to such agreement holder under Sec. 423.2756(a) by filing an initial dispute. We proposed at Sec. 423.2764(a)(1) that the initial dispute must be filed in the manner specified by CMS no later than the dispute submission deadline, which is defined at Sec. 423.2704 as the date that is 60 calendar days from the date of the invoice containing the information that is the subject of the dispute. The disputing manufacturer must explain why it believes the invoiced discount amount is in error and must provide supporting evidence that is material, specific, and related to the dispute. We proposed at Sec. 423.2764(a)(2) that CMS will issue a written determination on such initial dispute no later than 60 calendar days from the dispute submission deadline.

At Sec. 423.2764(b), we proposed that an agreement holder that receives an unfavorable determination from CMS on its initial dispute, or that has not received a determination within 60 calendar days of the dispute submission deadline, may request review by the independent review entity (IRE) contracted by CMS. We proposed at Sec. 423.2764(b)(1) that an agreement holder must file a request for review by the IRE in the manner specified by CMS no later than the earlier of 30 calendar days from the date of the unfavorable determination on the initial dispute, or 90 calendar days from the dispute submission deadline if no determination was made within 60 calendar days of the dispute submission deadline.

We proposed at Sec. 423.2764(b)(2) that the IRE may seek additional information from any agreement holder that requests an independent review, for the purpose of considering the appeal. An agreement holder's failure to comply with an information request from the IRE within the timeframe specified could result in the IRE issuing a denial. In addition to the information provided by the agreement holder, the IRE will base its decision on information received by CMS, the TPA, the Part D sponsor, and other sources.

We proposed at Sec. 423.2764(b)(3) that the IRE will issue a written decision to the agreement holder and to CMS no later than 90 calendar days from receipt of the request. At Sec. 423.2764(b)(4), we proposed that the notice must include a clear statement indicating whether the decision is favorable or unfavorable to the agreement holder; an explanation of the rationale for the IRE's decision; and instructions on how to request a review by the CMS Administrator. At Sec. 423.2764(b)(5), we proposed that a decision by the IRE is binding on all parties unless the agreement holder or CMS files a valid request for review by the CMS Administrator.

At Sec. 423.2764(c)(1), we proposed that an agreement holder or CMS may

request review by the CMS Administrator following receipt of an unfavorable determination from the IRE. We proposed at Sec. 423.2764(c)(2) that such request must be filed in the manner specified by CMS, no later than 30 calendar days from the date of the IRE decision. We proposed at Sec. 423.2764(c)(3) that after completing the review and making a decision, the CMS Administrator will issue a written decision to both parties. Such decision by the CMS Administrator is final and binding under proposed Sec. 423.2764(c)(4). At Sec. 423.2764(d), we proposed that CMS will adjust future invoices, or implement an alternative reimbursement process if determined necessary, if a dispute is resolved in favor of the agreement holder. We further proposed at Sec. 423.2756(b)(3) that agreement holders cannot withhold payment for any disputed invoiced amount, including while a dispute is pending, except as specified at Sec. 423.2756(b)(3).

We proposed at Sec. 423.2764(e) that agreement holders cannot use this dispute resolution process to dispute a decision by CMS to terminate an agreement holder's participation in the Manufacturer Discount Program under Sec. 423.2752(c)(1) or a decision by CMS about a manufacturer's eligibility for discount phase-ins described at Sec. 423.2720. The dispute resolution process must be used specifically for the purpose of resolving disputes regarding applicable discounts invoiced to agreement holders under Sec. 423.2756(a).

Regarding beneficiary disputes, the IRA does not require a dispute resolution mechanism for Part D enrollees with respect to the Manufacturer Discount Program and, as a practical matter, an individual would likely not be aware if a discount is provided on their claim, because in most cases, the Manufacturer Discount Program will not affect enrollee cost sharing, and consistent with section 1860D- 14C(g)(4) of the Act, applicable discounts are not counted toward an enrollee's incurred costs. Nevertheless, any Part D enrollee who has a dispute about their plan's decision not to provide or pay for a Part D drug, including a dispute about whether a drug is excluded from Part D or about the amount of cost sharing, has the right to request a coverage determination from the plan and the right to appeal any coverage determination not fully favorable to the enrollee under the procedures specified in subpart M of part 423.

We received no comments on this section and are finalizing Sec. 423.2764 as proposed. 16. Civil Money Penalties (Sec. Sec. 423.1000, 423.1002 and 423.2768)

Section 1860D-14C(e) of the Act requires that a manufacturer that fails to provide, in accordance with the terms of its Manufacturer Discount Program agreement and the requirements of the Manufacturer Discount Program, applicable discounts for applicable drugs covered by the manufacturer's Manufacturer Discount Program agreement and dispensed to applicable beneficiaries is subject to a civil money penalty (CMP) for each such failure. CMS proposed codifying this general rule at Sec. 423.2768(a), in alignment with processes established in section 120 of the Manufacturer Discount Program Final Guidance.

CMS proposed at Sec. 423.2756(b)(1) to require agreement holders to pay invoiced amounts to relevant Part D sponsors within 38 calendar days of receipt of a TPA invoice. CMS considers an agreement holder to have failed to provide applicable discounts if payment is not made within 38 calendar days, with limited exceptions as proposed at Sec. 423.2756(b)(2) and (b)(3). As we stated in the proposed rule, it is imperative that agreement holders make timely payments under the Manufacturer Discount Program, and an agreement holder's failure to establish sufficient controls to ensure compliance with this requirement will not relieve the agreement holder of penalties imposed under section 1860D-14C(e)(1) of the Act.

We proposed at Sec. 423.2768(b) that CMS will issue a notice of non-compliance to an agreement holder that fails to make a timely payment as required under Sec. 423.2756(b), and that the agreement holder has 5 business days to respond to CMS.

Consistent with section 1860D-14C(e)(1) of the Act, we proposed at Sec. 423.2768(c) that a CMP will be equal to the sum of the amount the agreement holder would have paid with respect to the applicable discount, plus 25 percent of such amount. We stated in the proposed rule that in situations where an agreement holder pays an invoice in part, but not in full, within the required timeframe, any CMP imposed by CMS would be based only on the outstanding invoiced amount that was not paid within the required timeframe. Additionally, while the amount of a CMP may be reduced by any invoiced amount the agreement holder pays after the 38-day timeframe, such late payments will not relieve the agreement holder of its obligation to pay the additional 25 percent penalty, which will be assessed on all invoiced amounts not paid within the required timeframe, as proposed at Sec. 423.2756(b).

We proposed at Sec. 423.2768(d) that if after issuing a notice of non-compliance, CMS makes a determination to impose a CMP on an agreement holder, CMS will send to such agreement holder a written notice of the determination to impose a CMP. Under our proposal, CMS would include the following 6 elements in the notice: a description of the basis for the determination, the basis for the penalty, the amount of the penalty, the date the penalty is due, the agreement holder's right to a hearing according to the administrative appeal process and procedures established in 42 CFR part 423, subpart T, and information about where to file the request for a hearing.

To ensure a consistent approach to CMPs, we proposed at Sec. 423.2768(e) to apply existing appeal procedures for CMPs in 42 CFR part 423, subpart T to agreement holders appealing a CMP imposed under the Manufacturer Discount Program. Specifically, we proposed to amend paragraph Sec. 423.1000(a)(3) by replacing it with new paragraphs (a)(3)(i) and (a)(3)(ii) to codify that CMS must impose a CMP on a manufacturer that fails to provide applicable discounts for applicable drugs of the manufacturer pursuant to both the terms of such manufacturer's Coverage Gap Discount Program agreement and such manufacturer's Manufacturer Discount Program agreement.

We also proposed conforming changes to the definition of “affected party” at Sec. 423.1002 to revise the definition to refer to “for purposes of the Coverage Gap Discount Program, any manufacturer (as defined in Sec. 423.100)” and “for purposes of the Manufacturer Discount Program, any manufacturer that is an agreement holder (as defined in Sec. 423.2704)”.

Section 1128A(c)(2) of the Act specifically requires that CMS not collect a CMP until the affected party has received written notice and been given an opportunity for a hearing. Accordingly, we proposed to codify at Sec. 423.2768(f)(1) that CMS may not collect a CMP until the affected party (as defined at Sec. 423.1002) has received notice and the opportunity for a hearing under section 1128A(c)(2) of the Act.

We proposed to codify timing requirements for collecting CMPs that are assessed under the Manufacturer Discount Program in alignment with section 120.3 of the Manufacturer Discount Program Final Guidance and with existing CMP appeal procedures codified in 42 CFR part 423, subpart T. Specifically, we proposed at

Sec. 423.2768(f)(2) that an agreement holder that has received from CMS a notice of determination to impose a CMP must pay such CMP in full within 60 calendar days of the date of the CMS notice of determination, except as provided in Sec. 423.2768(f)(3). At Sec. 423.2768(f)(3), we proposed that if the agreement holder requests a hearing to appeal in accordance with 42 CFR part 423, subpart T, the CMP is due, as applicable, once the administrative process specified in subpart T has concluded. We further proposed at Sec. 423.2768(f)(4) that CMS will initiate the collection of a CMP owed by an agreement holder either following the expiration of 60 days from the date of the CMS notice of determination to impose a CMP, or, if later, the conclusion of the administrative process specified in 42 CFR part 423, subpart T, as applicable.

Section 1860D-14C(e)(2) of the Act makes the provisions of section 1128A of the Act (except for subsections (a) and (b) of section 1128A of the Act) applicable to CMPs imposed under the Manufacturer Discount Program. We proposed to codify this requirement at Sec. 423.2768(g).

At Sec. 423.2768(h), we proposed that, in the event an agreement holder declares bankruptcy, as described in title 11 of the United States Code, and, as a result of such bankruptcy, fails to pay the total sum of the CMPs imposed, the government reserves the right to file a proof-of-claim and take any other action under bankruptcy law, as appropriate, to attempt to recover such unpaid amounts and any CMPs imposed by CMS under these proposed regulations.

Comment: We received a comment on our proposed regulations related to CMPs. The commenter argued that the language in our proposed CMP regulation fails to recognize the agency's flexibility and enforcement discretion. Pointing to language in proposed Sec. 423.2768, which states that CMS “must impose a civil money penalty,” the commenter asserted that CMS's proposed regulation does not take into account factors in section 1128A(d) of the Act when determining the scope or amount of CMP. The commenter also stated that CMS procedures should allow for discussion and explanation between CMS and the manufacturer and should include an opportunity for the manufacturers to confer with the agency prior to imposition of CMPs and without requiring a manufacturer to request a formal hearing. The commenter stated generally that this would be consistent with government agencies issuing pre-enforcement notification letters or pursuing other informal means to give regulated parties an opportunity to respond before the agency initiates formal proceedings.

Response: We appreciate the commenter's feedback on the proposed CMP regulations. We believe our proposed CMP regulations at Sec. Sec. 423.1000, 423.1002, and 423.2768 are consistent with statutory requirements under the Manufacturer Discount Program, and that the clarity provided in our CMP regulation text is important for enforcement purposes. Section 1860D-14C(e) of the Act states that if a manufacturer fails to provide discounted prices for applicable drugs of the manufacturer dispensed to applicable beneficiaries in accordance with the Manufacturer Discount Program agreement in effect, such manufacturer “shall” be subject to a CMP for each such failure. Further, section 1860D-14C(e) of the Act explicitly provides the formula that must be used to determine the amount of such CMP.

We agree with the commenter that CMS may exercise enforcement discretion in our imposition of CMPs. Our proposed regulation text does not preclude the agency from exercising discretion and allows an opportunity for dialogue prior to the agency making a determination to impose a CMP under the Manufacturer Discount Program, using the same process used under the Coverage Gap Discount Program. Proposed Sec. 423.2768(b) provides that when an agreement holder fails to make a timely payment as required under Sec. 423.2756(b), CMS will issue to the agreement holder a notice of non-compliance with information about the violation, and the agreement holder will have five business days from the date of the notice to respond to CMS. As we stated in response to similar comments in the Manufacturer Discount Program Final Guidance and in the preamble to the proposed rule, this gives the agreement holder an opportunity to provide additional context, evidence refuting the violation, or other factors CMS may consider when determining whether to impose a CMP. Part D sponsors advance applicable discounts at the point of sale on behalf of manufacturers, and it is essential that manufacturers, in turn, provide timely reimbursement. Accordingly, such discretion is generally limited to a situation where the manufacturer demonstrates that the non-compliance is due to a technical or other reason beyond the manufacturer's control.

After consideration of the public comments we received, we are finalizing without modification our proposals at Sec. Sec. 423.1000, 423.1002, and 423.2768. 17. Severability

We proposed that the Manufacturer Discount Program provisions finalized herein would be separate and severable from one another. Further, we proposed that if any of these provisions is held to be invalid or unenforceable by its terms, or as applied to any person or circumstance, or stayed pending further agency action, it is our intention that such provision shall be severable from this rule and not affect the remainder thereof, or the application of such provision to other persons not similarly situated or to other, dissimilar circumstances.

We received no comments on this section of our proposal and are finalizing without modification.