Comments to CMS on Proposed Rule on Drug Misclassification, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program

By at 24 July, 2023, 1:54 pm

Meena Seshamani, M.D., Ph.D.

CMS Deputy Administrator and Director of the Center for Medicare

7500 Security Boulevard

Baltimore, Maryland 21244-1850


Chiquita Brooks-LaSure

CMS Administrator

7500 Security Boulevard

Baltimore, Maryland 21244-1850


Dear Dr. Seshamani and Ms. Brooks-LaSure:

My name is Karen Kerrigan and I serve as President & CEO of the Small Business & Entrepreneurship Council (SBE Council).

Thank you for the opportunity to provide input regarding the Centers for Medicare & Medicaid Services’ (CMS) recently proposed rule on the Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program.[1]

SBE Council is an education, advocacy, and research organization dedicated to protecting small businesses and promoting entrepreneurship. Our members include small business owners, entrepreneurs, state and local business groups, and corporate partners and associations. This includes the life-sciences industry, where small- and medium-sized companies employ over 70% of the nearly 1.9 million-member workforce.[2]

We write with concern over the proposed CMS rule, which drastically exceeds the agency’s statutory authority and will inhibit R&D across the life sciences – particularly that which is conducted by small businesses and innovators.


CMS’s proposed rule on the Misclassification of Drugs, Program Administration and Program Integrity Updates Under the Medicaid Drug Rebate Program will force life science firms to reveal proprietary and confidential data unless they hand out larger rebates on their most innovative drugs and therapies to the government.

As CMS and the Biden administration are well aware, supplementary rebates are to be voluntary, not compelled under the threat of revealing sensitive data to competitors. What’s more, CMS is dramatically expanding the number of drugs that fall under the Medicare Drug Rebate Program (MDRP).[3]

The stakes are high. Medicare & Medicaid comprise nearly half of all national spending on drugs, and any change in reimbursement structures or attempts to extort new rebates from manufacturers carry enormous ramifications for both patient access and life science innovation.[4]

SBE Council opposes this proposed rulemaking as it steps well outside the bounds of CMS’s authority and will stifle medical innovation and R&D, particularly for drugs and therapies that will disproportionately impact low-income and minority populations.

Statutory Overreach of Authority

CMS’s attempt to implement the 2022 Inflation Reduction Act (IRA)[5] – and the October 2022 executive order on prescription drug pricing[6] – via the agency’s rulemaking process goes far beyond its purview.

As part of the proposed rule, CMS would effectively require Medicaid drug manufacturers to hand over proprietary and confidential data if they do not provide the government with additional rebates on their drugs. Such squeezing of life science manufacturers is not a unilateral authority granted to CMS.

CMS would also summarily change definitions of key terms in the MDRP – affecting the number of drugs subject to rebates and sidestepping the proper role and prerogative of Congress. The agency lacks the statutory authority to proceed down this path.

Impact on Medicare & Medicaid Beneficiaries

The proposed rule targets drugmakers for exhorbitant supplemental rebates over and above the rebates they absorb to keep costs down for Medicare & Medicaid beneficiaries.

By imposing additional onerous audits and a so-called “drug price verification survey” creates new roadblocks for manufacturers looking to serve low-income, minority, and elderly populations who disproportionately benefit from new drug innovation. As the costs of R&D and innovation rise (both due to new regulation and to the inherent increase in difficulty of finding new solutions over time), patient access – particularly among Medicare & Medicaid beneficiaries – will suffer unless CMS reverses course and releases the pressure currently befalling life science manufacturers.

Impact on Accelerated Approval

In addition to the general dampening effect on medical innovation, this proposed rule has the perverse effect of doubling down on the IRA’s harmful impact on R&D for treatments that primarily benefit Medicare & Medicaid beneficiaries.

Specifically, the proposed rule penalizes companies that utilize the accelerated approval pathway, FDA’s innovative program designed to allow revolutionary, life-saving drugs to reach patients in need faster.[7] By introducing approval criteria focused on “surrogate endpoints” that can predict clinical benefit, accelerated approval has been vital for desperate patients with urgent and unmet medical needs, particularly those in oncology, HIV, and specialty and rare diseases.[8] [9]

CMS incorrectly asserts that accelerated approval drugs drive high costs for the agency, ignoring that these drugs are often designed to impact a small number of patients, leaving the total addressable market (and associated costs) relatively small.[10] By targeting firms that attempt to cure diseases that both cause immense suffering and carry little hope for a cure, CMS penalizes patients hoping for a miracle for a mirage of cost-savings.

The proposed rule also complements other recent CMS policies that penalize companies for utilizing the accelerated approval pathway such as limits on coverage or coverage with evidence development (CED). Taken together, these harmful policies ultimately penalize patients, who must wait longer for potentially lifesaving treatments.

Implications for Small Businesses and Innovators

SBE Council’s core membership, small businesses and innovators within the life sciences industry, serve a key role in pushing forward medical advancements and job creation across America. Unfortunately, this proposed rule, as mentioned before, doubles down on the IRA’s worst policy ideas and furthers the increasingly-hostile regulatory environment.

In particular, burdensome reporting requirements and new fines proposed will disproportionately harm small- and medium-sized life-science firms, who do not enjoy the ample resources of their larger siblings that can absorb these onerous new costs. This raises serious concerns about the long-term viability and sustainability of market access for small firms, which carries a knock-on effect as small firms often take the riskiest bets and push medical innovation forward.[11]


The Centers for Medicare & Medicaid Services’ proposed rule on the Misclassification of Drugs, Program Administration, and Program Integrity Updates Under the Medicaid Drug Rebate Program exceeds its statutory authority and will stifle innovation and small businesses in the life sciences industry. Congress, not CMS, is the appropriate arbiter of any additional rebates manufacturers should provide through the Medicaid Drug Rebate Program.

The Small Business & Entrepreneurship Council urges CMS to not finalize this proposed rule. Our members stand ready to offer counsel and work collaboratively to chart a better path forward for all involved.

Respectfully submitted,

Karen Kerrigan, President & CEO




[4] pg 8





[9]–Bringing-patients-access-to-needed-medicines-4.pdf pg 2



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