President Donald Trump has signed into law the “Right Rebate Act” (the Act), which imposes new penalties on drug manufacturers that knowingly misclassify a covered outpatient drug under the Medicaid Drug Rebate Program (MDRP). The Act also amends the MDRP statute to update the definition of single source and innovator multiple source drugs. The Act is one of several measures to address the complex area of drug classification under the MDRP and is one of several developments around drug pricing in recent months.

Effective April 18, 2019, the “Right Rebate Act” (the Act) imposes new penalties on drug manufacturers that knowingly misclassify a covered outpatient drug under the Medicaid Drug Rebate Program (MDRP). The Act stems from oversight conducted by Sen. Chuck Grassley, R-Iowa, into the categorization of EpiPen and a subsequent Department of Justice settlement relating to the categorization of the drug. Sen. Grassley’s investigation led to findings that the Department of Health and Human Services (HHS) did not have sufficient authority to oversee the categorization of drugs under the MDRP.

The Act is one of several measures to address the complex area of drug classification under the MDRP and is one of several recent developments around drug pricing in recent months.

Under the MDRP, manufacturers must pay greater rebates for drugs classified as innovator drugs than for drugs classified as noninnovator drugs and must self-report to the Centers for Medicare and Medicaid Services (CMS) whether the drug is an innovator or noninnovator drug. The Act imposes specific penalties for misclassifying such drugs. Under the Act, any manufacturer with an MDRP agreement that knowingly misclassifies a covered outpatient drug, such as by knowingly submitting incorrect drug product information, is subject to civil monetary penalties for each covered outpatient drug that is misclassified. The Act also permits the Secretary of HHS to exclude from participation in the federal healthcare programs those manufacturers that knowingly misclassify products, knowingly fail to correct such misclassifications or knowingly provide false information related to drug pricing, drug product information or data related to drug pricing or drug product information from participation in the federal healthcare programs. In addition, the Act requires manufacturers to correct misclassifications and imposes penalties for failure to comply with such requirements. These penalties are in addition to the Secretary’s authority to terminate the manufacturer’s MDRP agreement for noncompliance with the agreement’s terms. 

The Act also amends the MDRP statute to update the definition of single-source and innovator multiple-source drugs. The MDRP statute’s current definitions of single-source and innovator multiple-source drugs refers to drugs approved under an “original new drug application.” The Act deletes the term “original,” making any drug approved under “a new drug application” an innovator drug “unless the Secretary determines that a narrow exception applies.” This change codifies CMS’s position expressed in its 2016 final rule, which limits when a new drug application does not constitute an original new drug application to “very narrow exceptions,” requiring the manufacturer’s written submission to CMS and CMS’s confirmation where a narrow exception applies. The purpose of this change is to further which drugs can claim noninnovator status and pay lesser rebates under the MDRP. Since the issuance of the final rule, manufacturers have requested exceptions, but CMS has often been delayed in responding to such requests.