(a) Basis. This subpart implements section 1860D-14C of the Act and provisions included in section 1860D-43 of the Act.

(b) Scope. This subpart sets forth the requirements of the Medicare Part D Manufacturer Discount Program, which requires manufacturers to pay discounts for brand-name drugs and biological products when dispensed to Part D enrollees in the initial and catastrophic coverage phases of the Part D benefit, under the terms of an agreement with CMS, in order for such drugs to be coverable under Part D.

As used in this subpart and for purposes of the Manufacturer Discount Program, unless otherwise specified—

Agreement holder means a manufacturer that has executed and has in effect its own Manufacturer Discount Program agreement in accordance with § 423.2708(b)(1).

Applicable discount has the meaning set forth at § 423.2712.

Applicable LIS percent has the meaning set forth at § 423.2712(d)(1).

Applicable small manufacturer percent has the meaning set forth at § 423.2712(d)(2).

Covered Part D drug has the meaning set forth at § 423.100.

Dispute submission deadline means 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 has the meaning set forth at § 423.100, and with respect to an applicable drug under the Manufacturer Discount Program, such negotiated price includes any dispensing fee and, if applicable, any vaccine administration fee and sales tax.

Network pharmacy has the meaning set forth at § 423.100.

Part D drug has the meaning set forth at § 423.100.

Primary manufacturer has the meaning given such term pursuant to applicable regulations and guidance for the Medicare Drug Price Negotiation Program.

Specified drug means, 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 means, 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 means with respect to—

(1) Part D, the total gross covered prescription drug costs, as defined in § 423.308; and

(2) Part B, the total Medicare allowed amount (i.e., 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.

(a) General rule. Except as specified in paragraph (c) of this section, 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—

(1) The FDA-assigned labeler code of such applicable drug or selected drug must be covered by a Manufacturer Discount Program agreement (described at § 423.2752) that is in effect;

(2) The manufacturer must participate in the Manufacturer Discount Program in accordance with paragraph (b) of this section; and

(3) The manufacturer must have entered into and have in effect a Manufacturer Discount Program agreement in accordance with paragraph (b) of this section.

(b) Participation in the Manufacturer Discount Program. 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 for the purposes of paragraph (a) of this section if the manufacturer does either of the following:

(1) Executes and has in effect its own Manufacturer Discount Program agreement.

(2) 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 that is in effect.

(c) Exception. Paragraph (a) of this section does not apply to an applicable drug that is not covered by a Manufacturer Discount Program agreement if CMS has made a determination that the availability of the drug is essential to the health of Part D enrollees. This exception to the general rule in paragraph (a) of this section 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.

(d) Non-applicable drugs. Coverage under Part D is available for non-applicable drugs (as defined at § 423.100) of a manufacturer regardless of whether the manufacturer participates in the Manufacturer Discount Program or has a Manufacturer Discount Program agreement in effect.

(a) Defined. For purposes of the Manufacturer Discount Program, applicable discount means, subject to the requirements of this section, with respect to an applicable drug of a manufacturer dispensed during a year to an applicable beneficiary who has—

(1) Not incurred costs, as defined at § 423.100, for covered Part D drugs (as defined at § 423.100) in the year that are equal to or exceed the annual out-of-pocket threshold specified at § 423.104(d)(5)(iii) for the year, 10 percent of the negotiated price of such drug; and

(2) Incurred costs, as defined in § 423.100, for covered Part D drugs (as defined at § 423.100) in the year that are equal to or exceed the annual out-of-pocket threshold specified at § 423.104(d)(5)(iii) for the year, 20 percent of the negotiated price of such drug.

(b) Application of supplemental benefits. For Part D plans offering supplemental benefits (as defined in § 423.100), the value of any applicable discount under the Manufacturer Discount Program is calculated before the application of supplemental benefits.

(c) Application of other coverage. The applicable discount is 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.

(d) Application of discount phase-in for specified manufacturers and specified small manufacturers—(1) Applicable LIS percent. For an applicable drug of a specified manufacturer (as described at § 423.2716(a)) that is marketed as of August 16, 2022 (as described in paragraph (d)(3) of this section) 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:

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

(A) For 2025, 1 percent;

(B) For 2026, 2 percent;

(C) For 2027, 5 percent;

(D) For 2028, 8 percent; and

(E) For 2029 and each subsequent year, 10 percent.

(ii) For the individual who has incurred costs equal to or exceeding the annual out-of-pocket threshold for the year—

(A) For 2025, 1 percent;

(B) For 2026, 2 percent;

(C) For 2027, 5 percent;

(D) For 2028, 8 percent;

(E) For 2029, 10 percent;

(F) For 2030, 15 percent; and

(G) For 2031 and each subsequent year, 20 percent.

(2) Applicable small manufacturer percent. For an applicable drug of a specified small manufacturer (as described at § 423.2716(b)) that is marketed as of August 16, 2022 (as described in paragraph (d)(3) of this section) and dispensed for an applicable beneficiary, the applicable discount is as follows:

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

(A) For 2025, 1 percent;

(B) For 2026, 2 percent;

(C) For 2027, 5 percent;

(D) For 2028, 8 percent; and

(E) For 2029 and each subsequent year, 10 percent.

(ii) For the individual who has incurred costs equal to or exceeding the annual out-of-pocket threshold for the year—

(A) For 2025, 1 percent;

(B) For 2026, 2 percent;

(C) For 2027, 5 percent;

(D) For 2028, 8 percent;

(E) For 2029, 10 percent;

(F) For 2030, 15 percent; and

(G) For 2031 and each subsequent year, 20 percent.

(3) An applicable drug of a specified manufacturer or a specified small manufacturer, as applicable, is considered to have been marketed as of August 16, 2022 if the 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.

(e) Straddle claims. In the case of a claim for an applicable drug for an applicable beneficiary that straddles multiple phases of the Part D benefit for claims that do not fall entirely—

(1) Above the annual deductible specified at § 423.104(d)(1), the manufacturer provides the applicable discount on only the portion of the negotiated price that falls above the deductible; and

(2) Below or entirely above the annual out-of-pocket threshold specified at § 423.104(d)(5)(iii), 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.

(f) Claims not subject to discount. The following claims involving an applicable drug are not subject to discounts under the Manufacturer Discount Program:

(1) Medicare Secondary Payer claims.

(2) Medicaid Subrogation claims.

(3) Non-standard format coordination of benefits claims.

(4) Manual claims with a service provider identification qualifier of “Other”.

(g) Impact of applicable discount on enrollee cost sharing. (1) Except as specified in paragraph (g)(2) of this section, the applicable discount does not affect the application of the standard 25 percent coinsurance under § 423.104(d)(2) or the application of the copayment amount under § 423.104(d)(5).

(2) If, after the applicable discount is applied to the negotiated price of an applicable drug, the enrollee cost sharing specified under the plan would exceed such negotiated price minus the applicable discount, the enrollee cost sharing is the negotiated price minus the applicable discount.

(a) Specified manufacturer. Subject to the limitation with respect to manufacturer acquisitions described at § 423.2724, a specified manufacturer is a manufacturer of an applicable drug that, in 2021, had—

(1) A Coverage Gap Discount Program agreement, as described at § 423.2315, in effect in accordance with § 423.2720(a)(1);

(2) Total expenditures for all of its specified drugs (as defined in § 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

(3) 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.

(b) Specified small manufacturer. Subject to the limitation with respect to manufacturer acquisition described at § 423.2724, a specified small manufacturer is a manufacturer of an applicable drug that, in 2021—

(1) Is a specified manufacturer as described in paragraph (a) of this section; and

(2) The total expenditures under Part D for any one of its specified small manufacturer drugs 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.

(c) Aggregation rule. 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.

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 applying the aggregation rule at § 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.

(a) Identification of specified manufacturers. (1) A manufacturer is considered to have had a Coverage Gap Discount Program agreement in 2021, as specified at § 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.

(2) Part D total expenditures. In calculating the Part D total expenditures for 2021, CMS will include the total expenditures, as defined at § 423.2704, reported on all final action, non-delete PDE records submitted as of June 30, 2022 for all Part D drugs with dates of dispensing in benefit year 2021.

(i) For purposes of calculating each manufacturer's Part D total expenditures for applicable drugs and percent share of Part D total expenditures for 2021, CMS will—

(A) Identify the relevant NDCs attributable to the manufacturer as reported on the PDE record based on the manufacturer's FDA-assigned labeler code extracted from the first 5 digits of each NDC;

(B) Calculate the Part D total expenditures for applicable drugs of the manufacturer by summing the 2021 Part D total expenditures for all relevant NDCs attributable to the manufacturer; and

(C) Divide the 2021 Part D total expenditures for all applicable drugs of the manufacturer by the 2021 Part D total expenditures for all Part D drugs, then multiply by 100 to calculate the manufacturer's percent share.

(ii) If the 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, specified at § 423.2716(a)(2).

(3) Part B total expenditures. In calculating the Part B total expenditures for all drugs and biological products for 2021, CMS will include all Part B Carrier, durable medical equipment (DME), and Outpatient Medicare Part B Fee-for-Service claim line items with a drug- or biological product-related Healthcare Common Procedure Coding System (HCPCS) code submitted as of December 31, 2022.

(i) For purposes of calculating each manufacturer's Part B total expenditures for applicable drugs that are single source drugs and biological products and each manufacturer's percent share of Part B total expenditures for 2021, CMS will—

(A) Map all identified HCPCS codes to NDCs;

(B) Identify all mapped HCPCS codes in paragraph (a)(3)(i)(A) of this section that map to NDCs associated with single source drugs or biological products;

(C) Identify all mapped HCPCS codes identified in paragraph (a)(3)(i)(B) of this section that map only to NDCs associated with single source drugs or biological products of the same manufacturer, consistent with the aggregation rule at § 423.2716(c), based on the manufacturer's FDA-assigned labeler code(s) extracted from the first 5 digits of each NDC;

(D) Attribute 2021 Part B total expenditures for all applicable drugs that are single source drugs or biological products identified in paragraph (a)(3)(i)(C) of this section to each manufacturer, consistent with the aggregation rule at § 423.2716(c), based on the manufacturer's FDA-assigned labeler code(s) extracted from the first 5 digits of each NDC; and

(E) Divide the 2021 Part B total expenditures attributed to each manufacturer in paragraph (a)(3)(i)(D) of this section by the 2021 Part B total expenditures for all drugs and biological products, then multiply by 100 to calculate the manufacturer's percent share.

(ii) If the manufacturer's Part B total expenditures for its applicable drugs that are single source drugs and biologicals 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 specified manufacturer phase-in eligibility, specified at § 423.2716(a)(3).

(b) Identification of specified small manufacturers. (1) For each specified manufacturer identified in paragraph (a) of this section, CMS will determine if the 2021 total expenditures under Part D for any one of the manufacturer's specified drugs 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 of its specified drugs covered under Part D in 2021, as required under § 423.2716(b)(2), as follows.

(i) Identification of specified small manufacturer drugs. (A) For purposes of this section, one specified small manufacturer drug includes—

(1) For drug products, all dosage forms and strengths of a drug with the same active moiety and the same holder of the new drug application (NDA), as described in section 505(c) of the Federal Food, Drug, and Cosmetic Act, inclusive of products that are marketed under different NDAs.

(2) For biological products, all dosage forms and strengths of the biological product with the same active ingredient and the same holder of the biologics license application (BLA), as described in section 351(a) of the Public Health Service Act, inclusive of products that are marketed under different BLAs.

(B) CMS will identify the holder of the NDA or BLA as reported in Drugs@FDA or the FDA Purple Book, respectively.

(C) If a drug is a fixed combination drug, as described in 21 CFR 300.50, with two or more active ingredients or active moieties, the distinct combination of active ingredients or active moieties will be considered one active ingredient or active moiety for the purpose of identifying a specified small manufacturer drug.

(D) CMS will attribute 2021 Part D total expenditures for one specified small manufacturer drug, including authorized generic drugs and repackaged and relabeled drugs, as applicable, to a specified manufacturer based on the NDC(s) for the drug, as reported on PDE records, by matching 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.

(ii) Calculation of Part D total expenditures for each drug for 2021. CMS will calculate the Part D total expenditures for each drug, aggregated in accordance with paragraph (b)(1)(i) of this section, attributable to the manufacturer by summing the Part D total expenditures for all NDCs under each drug as reported on all final action, non-delete PDE records submitted as of June 30, 2022, with dates of dispensing in benefit year 2021.

(iii) Calculation of each specified drug's percent share of the specified manufacturer's Part D total expenditures for applicable drugs for 2021. CMS will divide the 2021 Part D total expenditures for each drug, aggregated in accordance with paragraph (b)(1)(i) of this section, by the 2021 Part D total expenditures for all applicable drugs of the manufacturer, as determined under paragraph (a)(2) of this section, then multiply by 100 to determine the percent share.

(iv) Part D total expenditures for a specific drug for 2021 and small manufacturer phase-in eligibility. If the 2021 Part D total expenditures for one specified drug of the manufacturer are equal to or greater than 80 percent of the manufacturer's 2021 Part D total expenditures for all of its specified drugs, CMS will consider the manufacturer to have satisfied the criterion at § 423.2716(b)(2) for specified small manufacturer phase-in eligibility.

(2) [Reserved]

(c) Written notice of determination. (1) CMS will issue a phase-in eligibility 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.

(2) 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 the Manufacturer Discount Program, when a manufacturer acquires another manufacturer after 2021 (that is, the acquired manufacturer becomes part of such acquiring manufacturer under the aggregation rule at § 423.2716(c)), the acquired manufacturer assumes the phase-in status of the acquiring manufacturer, effective at the beginning of the plan year immediately following the acquisition or, for an acquisition before 2025, effective January 1, 2025.

(a) Right to request a recalculation. A manufacturer that has received a phase-in eligibility determination notice, as described at § 423.2720(c), may request a recalculation of such determination in accordance with the requirements of this section.

(b) Timeframe and method of filing. A manufacturer that seeks a recalculation of its phase-in eligibility determination must file the request, in the manner specified by CMS, no later than 30 calendar days from the date the phase-in eligibility determination notice is electronically sent to the manufacturer. In order to receive consideration, the recalculation request must clearly describe the issue(s) forming the basis of the request and must include supporting documentation.

(c) Disposition and notification. After consideration of the issues raised, 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, this subpart, and the Manufacturer Discount Program agreement.

(d) Limitation. The recalculation 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.

(a) CMS will engage a third party administrator (TPA) to assist in the administration of the Manufacturer Discount Program, which may include and is not limited to facilitating—

(1) Manufacturer Discount Program invoicing;

(2) The receipt and distribution of funds of a manufacturer; and

(3) The dispute resolution process described in § 423.2764.

(b) Agreement holders must—

(1) Enter into and have in effect, under the terms and conditions specified by CMS, an agreement with the TPA in order to participate in the Manufacturer Discount Program. The TPA agreement will only terminate upon the termination of the Manufacturer Discount Program agreement; and

(2) Establish and maintain electronic connectivity with the TPA for the purpose of timely transmission of data and funds.

(a) Point-of-sale discounts. Part D sponsors must provide applicable discounts on applicable drugs at the point of sale on behalf of the manufacturer. As part of this process, plan sponsors must determine—

(1) Whether an enrollee is an applicable beneficiary as described in § 423.100;

(2) Whether a drug is an applicable drug as described in § 423.100; and

(3) The amount of the discount, in accordance with § 423.2712.

(b) Direct member reimbursement (DMR). Part D sponsors must provide applicable discounts on claims for applicable drugs submitted by applicable beneficiaries as 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.

(c) Pharmacy prompt payment. Part D sponsors must reimburse a network pharmacy (as defined in § 423.100) the amount of the applicable discount within the applicable number of calendar days (as defined in § 423.100) of the date of dispensing (as defined in § 423.100) of an applicable drug, consistent with § 423.520.

(d) Prescription drug event (PDE) requirements. 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.

(e) Retroactive adjustments. 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.

(a) CMS will invoice negative amounts to Part D sponsors when a PDE(s) which had been previously invoiced is deleted or adjusted such that the reported Manufacturer Discount Program discount amount is less than originally invoiced.

(b) Part D sponsors are required to pay such negative invoice amounts in the manner specified by CMS within 38 calendar days of receipt of the invoice.

(a) General rule. CMS will provide monthly prospective Manufacturer Discount Program payments to Part D sponsors for sponsors to advance manufacturer discounts as specified in § 423.2736(a) and reimburse network pharmacies as specified in § 423.2736(c).

(b) Exception. CMS will not provide prospective Manufacturer Discount Program payments to employer group waiver plans.

(c) Reconciliation. CMS will reconcile prospective Manufacturer Discount Program payments in accordance with subpart G of this part.

(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 such bankruptcy does not pay the invoiced amounts described in § 423.2756(a), CMS will adjust the Manufacturer Discount Program reconciliation amount for affected Part D sponsors to account for the invoiced amounts owed for the contract year being reconciled. 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 civil money penalties imposed by CMS under this part.

Agreement holders are required to maintain Health Plan Management System (HPMS) access and use the HPMS to—

(a) Provide and maintain required information, as specified by CMS;

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

(c) Execute a Manufacturer Discount Program agreement and a TPA agreement; and

(d) As otherwise specified by CMS to administer the program.

Manufacturers that are agreement holders, as defined in § 423.2704, must comply with all requirements of this section.

(a) Requirements of agreement. The manufacturer must do all of the following:

(1) Reimburse, within the required 38-day timeframe, all applicable discounts invoiced to the manufacturer, consistent with the requirements at § 423.2756(b).

(2) Provide CMS with all labeler codes covered by the agreement.

(3) Ensure that the labeler codes provided to CMS under paragraph (a)(2) of this section include, at a minimum, all labeler codes assigned by the FDA to the manufacturer, in accordance with § 423.2756(c)(3).

(4) 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.

(5) Comply with the requirements related to the provision and maintenance of data at § 423.2756(c).

(6) Enter into and have in effect, under the terms and conditions specified by CMS, an agreement with the TPA, as described at § 423.2732(b)(1), and comply with such agreement and all TPA instructions, processes, and requirements.

(7) Provide and attest to information in the manner and form specified by CMS as necessary for CMS to determine eligibility for and implement the specified manufacturer and specified small manufacturer phase-ins described at § 423.2716.

(8) Agree that, no less than 30 days after the date CMS determines that a primary manufacturer of a selected drug has, in accordance with paragraph (c)(1)(ii) of this section, 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.

(9) Comply with all other requirements of the Manufacturer Discount Program.

(b) Agreement term and renewal. (1) A Manufacturer Discount Program agreement described in this section is valid for an initial term of not less than 12 months and automatically renews for a period of 1 year on each subsequent January 1, except as described in paragraph (b)(3) this section, unless terminated in accordance with paragraph (c) of this section.

(2) For calendar year 2025, an agreement holder must enter into such agreement no later than March 1, 2024, and the initial 12-month term of such agreement begins on January 1, 2025 and ends on December 31, 2025.

(3) For calendar year 2026 and subsequent years, a Manufacturer Discount Program agreement will become effective on the first day of a calendar quarter as follows:

(i) An agreement holder must enter into the agreement no later than the last day of the first month of a calendar quarter in order for the agreement to be effective on the first day of the next calendar quarter.

(ii) If an agreement holder enters into the agreement after the last day of the first month of a particular calendar quarter, the agreement becomes effective on the first day of the second calendar quarter after the calendar quarter in which the manufacturer entered into the agreement.

(iii) An initial term that begins on January 1 will end on December 31 of the same calendar year. An initial term that begins on April 1, July 1, or October 1 will end on December 31 of the following calendar year.

(c) Termination of Manufacturer Discount Program agreement—(1) Termination by CMS. (i) CMS may terminate a Manufacturer Discount Program agreement for a knowing and willful violation of the requirements of such agreement or other good cause shown in relation to a manufacturer's participation in the Manufacturer Discount Program, including good cause as set forth in paragraph (c)(1)(ii) of this section.

(ii) CMS may terminate a Manufacturer Discount Program agreement for good cause, in the case of a primary manufacturer under the Medicare Drug Price Negotiation Program, upon submission of a request from such manufacturer to terminate its applicable agreements under the Manufacturer Discount Program in connection with a notice of the primary manufacturer's decision that it is unwilling to participate in, or continue its participation in, the Medicare Drug Price Negotiation Program. If CMS determines such a notice complies with all requirements set forth in applicable regulations and guidance for the Medicare Drug Price Negotiation Program, the primary manufacturer's request will constitute good cause under paragraph (c)(1) of this section to terminate the primary manufacturer's applicable agreements under 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 under § 423.2708(b)(2) in which FDA-assigned labeler codes of the primary manufacturer are covered under the Manufacturer Discount Program agreement of another manufacturer. If applicable, CMS will effectuate termination of coverage of such FDA-assigned labeler codes of the primary manufacturer that are covered under the Manufacturer Discount Program agreement of another manufacturer in accordance with paragraph (c)(1)(v)(A)(1) of this section.

(iii) Any termination by CMS must not be effective earlier than 30 days from the date of the notice to the manufacturer of such termination. If a hearing is timely requested by the manufacturer in accordance with paragraph (c)(1)(iv) of this section, such termination must not be effective prior to resolution of timely appeal requests received in accordance with the requirements of this section.

(iv) CMS will provide, upon written request, a manufacturer a hearing concerning a termination by CMS as follows:

(A) 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.

(B) 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.

(C) In the case of a termination by CMS under paragraph (c)(1)(ii) of this section with respect to a primary manufacturer under the Medicare Drug Price Negotiation Program, the hearing will be held solely on the papers. The only question to be decided in such hearing is whether the primary manufacturer has asked to rescind its request to terminate under paragraph (c)(1)(ii) of this section prior to the effective date of the termination. If so, CMS will automatically grant such request from the primary manufacturer to rescind its request to terminate under paragraph (c)(1)(ii) of this section.

(v) In addition to the termination under paragraph (c)(1)(ii) of this section of any Manufacturer Discount Program agreement for which the primary manufacturer is the agreement holder, CMS will effectuate the removal of labeler code(s) that are covered under the Manufacturer Discount Program agreement of another manufacturer and termination of coverage of any specific NDC(s) of applicable drugs and selected drugs of a primary manufacturer that are covered under the Manufacturer Discount Program agreement of another manufacturer as follows:

(A) If a primary manufacturer provides notice to CMS that it is unwilling to participate in, or continue its participation in, the Medicare Drug Price Negotiation Program, consistent with paragraph (c)(1)(ii) of this section, no earlier than 30 days from the date CMS sends the notice of termination to the manufacturer in accordance with paragraph (c)(1)(iii) of this section, CMS will effectuate—

(1) The removal of the FDA-assigned labeler code(s) of the primary manufacturer from any Manufacturer Discount Program agreement of another manufacturer whereby such labeler codes of the primary manufacturer are covered in accordance with § 423.2708(b)(2); and

(2) The termination of coverage under any Manufacturer Discount Program agreement specific to NDCs of 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 paragraph (c)(1)(v)(A)(2) 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.

(B) The removal of labeler code(s) in accordance with paragraph (c)(1)(v)(A)(1) of this section and the termination of coverage specific to NDCs in accordance with paragraph (c)(1)(v)(A)(2) of this section 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. An agreement holder may terminate its Manufacturer Discount Program agreement for any reason. The effective date of the termination is as follows:

(i) If the agreement holder notifies CMS of its intent to terminate before January 31 of a calendar year, January 1 of the succeeding calendar year.

(ii) If the agreement holder notifies CMS of its intent to terminate on or after January 31 of a calendar year, January 1 of the second succeeding calendar year.

(3) Post-termination obligations. Termination of a Manufacturer Discount Program agreement under the requirements of this section does not affect the agreement holder's responsibility to reimburse Part D sponsors for applicable discounts for applicable drugs having NDCs with labeler code(s) covered by such agreement that were incurred under the agreement prior to the effective date of the termination.

(4) Reinstatement. Reinstatement in the Manufacturer Discount Program subsequent to termination is available to a manufacturer only upon payment of any and all outstanding applicable discounts and penalties incurred under any previous Manufacturer Discount Program agreement or Coverage Gap Discount Program agreement. The timing of the reinstatement must be consistent with the requirements at § 423.2752(b).

(d) Automatic assignment upon change of ownership. 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 § 423.2752(c). The new agreement holder agrees to be bound by and to perform all the duties and responsibilities under the Manufacturer Discount Program, and assumes 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.

Manufacturers that are agreement holders, as defined at § 423.2704, must comply with all requirements of this section.

(a) Manufacturer invoicing. CMS will—

(1) Calculate the amounts owed for applicable discounts for applicable drugs having NDCs with a labeler code covered by the agreement holder's Manufacturer Discount Program agreement;

(2) Itemize invoices at the NDC level;

(3) Invoice the agreement holder on a quarterly basis, consistent with the published invoicing calendar; and

(4) Invoice manufacturer discount amounts from accepted PDE data for 37 months following the end of the benefit year.

(b) Requirement for timely payment. (1) Agreement holders that are invoiced in accordance with paragraph (a) of this section are required to pay invoiced amounts within 38 calendar days of receipt of the invoice, in the manner specified by CMS, except as specified in paragraphs (b)(2) and (3) of this section.

(2) 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.

(3) Agreement holders are not permitted to withhold payment for any invoiced amount, including a disputed amount while a dispute is pending under § 423.2764, except when the basis for the dispute is that the invoiced amount does not correspond to NDCs of labeler codes covered by the agreement holder's Manufacturer Discount Program agreement. 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.

(c) Reporting requirements—(1) General. Agreement holders are required to collect, have available, and maintain appropriate data related to the labeler codes covered by their Manufacturer Discount Program agreement, and maintain such data for a period of not less than 10 years from the date of payment of the invoice.

(2) Manufacturer ownership. Agreement holders must—

(i) Provide and attest to ownership and other data, in the form and manner specified by CMS, as necessary for CMS to determine eligibility for and implement the discount phase-ins described at § 423.2716;

(ii) Notify CMS 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 such change in ownership taking effect; and

(iii) If the agreement holder covers the FDA-assigned labeler code(s) of another manufacturer by its Manufacturer Discount Program agreement in accordance with § 423.2708(b)(2), comply with the requirements of paragraphs (c)(2)(i) and (ii) of this section with respect to such other manufacturer.

(3) Labeler codes. (i) An agreement holder is required to 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.

(ii) Consistent with § 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 § 423.2708(b)(1).

(iii) Agreement holders must provide to CMS:

(A) All labeler codes assigned by the FDA to the agreement holder that contain NDCs for the agreement holder's applicable drugs and selected drugs, consistent with paragraph (c)(3)(iv) of this section.

(B) All labeler codes assigned by the FDA to another manufacturer that the agreement holder covers by its Manufacturer Discount Program agreement and for which the agreement holder agrees to pay discounts.

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

(v) Agreement holders must maintain the list of labeler codes covered by their Manufacturer Discount Program agreement, in the manner specified by CMS. Failure to update labeler codes covered by a Manufacturer Discount Program agreement in accordance with the requirements in this section and applicable CMS guidance does not change an agreement holder's obligation to pay invoiced amounts for applicable drugs.

(4) FDA and related records. (i) Agreement holders must:

(A) Ensure that all of their FDA-assigned labeler codes that contain NDCs for any of their applicable drugs or selected drugs are properly listed on the FDA NDC Directory;

(B) Electronically list all NDCs of their applicable drugs or selected drugs with the FDA in advance of commercial distribution of the product(s);

(C) Maintain up-to-date electronic FDA registrations and listings of all NDCs, including the timely removal of discontinued NDCs from the FDA NDC Directory; and

(D) Maintain up-to-date listings with electronic database vendors to whom they provide their NDCs for pharmacy claims processing.

(ii) If such 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 § 423.2708(b)(2), the agreement holder must ensure that the requirements of this section are met with respect to such labeler codes.

(d) Transfer of labeler codes. Agreement holders are permitted to transfer labeler code(s) from one Manufacturer Discount Program agreement to another provided that the transfer is consistent with the requirements of this subpart and the Manufacturer Discount Program agreement and is approved by CMS.

(a) Manufacturer audits of TPA data. (1) An agreement holder may conduct periodic audits, no more often than annually, of the TPA data and information used to determine discounts for applicable drugs covered by the agreement holder's Manufacturer Discount Program agreement, directly or through third parties.

(2) The agreement holder must provide the TPA with 60 calendar days' notice of the reasonable basis for the audit and a description of the information required for the audit.

(3) The audit is limited as follows:

(i) The data provided to the agreement holder conducting the audit is 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.

(ii) 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.

(iii) Audits must occur at a location specified by the TPA and, with the exception of work papers, audit data cannot be removed from such specified location.

(iv) The auditor for the agreement holder may release only an opinion of the audit results and is prohibited from releasing other information obtained from the audit, including work papers, to its client, employer, or any other party.

(b) CMS audits of manufacturers. (1) An agreement holder is subject to periodic audit by CMS no more often than annually, directly or through third parties, as specified in this section.

(2) CMS must provide the agreement holder with 60 calendar days' notice of the reasonable basis for the audit and a description of the information required for the audit.

(3) 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.

(a) Initial disputes. Agreement holders may dispute applicable discounts invoiced to such agreement holder under § 423.2756(a).

(1) Timeframe and method of filing. Initial disputes must be filed, in the manner specified by CMS, no later than the dispute submission deadline, as defined at § 423.2704. The agreement holder 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.

(2) Timeframe for making a determination. CMS will issue a written determination on an initial dispute no later than 60 calendar days from the dispute submission deadline.

(b) Independent review. An agreement holder that receives an unfavorable determination from CMS on its initial dispute or has not received a determination within 60 calendar days from the dispute submission deadline, may request review by the independent review entity (IRE) contracted by CMS.

(1) Timeframe and method of filing. A request for review by the IRE must be filed, in the manner specified by CMS, no later than the earlier of the following:

(i) Thirty calendar days from the unfavorable determination on the initial dispute.

(ii) Ninety calendar days from the dispute submission deadline, if no determination was made within 60 calendar days of the dispute submission deadline.

(2) Information considered. In addition to the information provided by the agreement holder, the IRE considers information received from CMS, the TPA, the Part D sponsor, or other sources. The IRE may request additional information from the agreement holder for the purpose of considering the appeal. Failure to comply with this request for additional information within the timeframe specified may result in the IRE issuing a denial.

(3) Timeframe for making a decision. The IRE issues a written decision to the agreement holder and to CMS no later than 90 calendar days from receipt of the request.

(4) Notice requirements. The IRE decision must include all of the following:

(i) A clear statement indicating whether the decision is favorable or unfavorable to the agreement holder.

(ii) An explanation of the rationale for the IRE's decision.

(iii) Instructions on how to request a review by the CMS Administrator.

(5) Effect of IRE decision. 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 under the process described in paragraph (c) of this section.

(c) Review by the CMS Administrator. (1) CMS or an agreement holder that receives an unfavorable decision by the IRE may request a review of a determination from the IRE by the CMS Administrator.

(2) A request for review by the CMS Administrator must be filed, in the manner specified by CMS, no later than 30 calendar days from the date of the IRE decision.

(3) The CMS Administrator issues a written decision to both parties.

(4) A decision by the CMS Administrator is final and binding.

(d) Adjustment to invoiced amounts. CMS adjusts future invoices (or implements an alternative reimbursement process if determined necessary) if the dispute is resolved in favor of the agreement holder.

(e) Limitation. The dispute resolution process described in this section must not be used to dispute a decision by CMS to terminate an agreement holder's participation in the Manufacturer Discount Program under § 423.2752(c)(1) or a decision by CMS about a manufacturer's eligibility for discount phase-ins described at § 423.2720.

(a) General rule. An agreement holder 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 agreement holder's Manufacturer Discount Program agreement and dispensed to applicable beneficiaries is subject to a civil money penalty for each such failure.

(b) Notice of non-compliance. When an agreement holder fails to make a timely payment as required under § 423.2756(b), CMS will issue to the agreement holder a notice of non-compliance with information about the violation. The agreement holder has 5 business days from the date of the notice to respond to CMS.

(c) Determination of the civil money penalty amounts. CMS must impose a civil money penalty for each failure equal to the sum of:

(1) The amount an agreement holder would have paid with respect to the applicable discount; and

(2) Twenty-five percent of such amount.

(d) Notice to impose civil money penalties. If CMS makes a determination to impose a civil money penalty as set forth in paragraph (c) of this section, CMS will send to the agreement holder a written notice of such determination that includes all of the following:

(1) A description of the basis for the determination.

(2) The basis for the penalty.

(3) The amount of the penalty.

(4) The date the penalty is due.

(5) The agreement holder's right to a hearing as set forth in paragraph (e) of this section.

(6) Information about where to file the request for a hearing.

(e) Appeal procedures for civil money penalties. An agreement holder has a right to a hearing following a decision by CMS to impose a civil money penalty according to the administrative appeal process and procedures established in subpart T of this part.

(f) Collection. (1) CMS may not collect a civil money penalty until the affected party (as defined in § 423.1002) has received notice and the opportunity for a hearing under section 1128A(c)(2) of the Act.

(2) An agreement holder that has received from CMS a notice of determination to impose a civil money penalty must pay such civil money penalty in full within 60 calendar days of the date of the CMS notice of determination, except as provided in paragraph (f)(3) of this section.

(3) If the agreement holder requests a hearing to appeal in accordance with subpart T of this part, the civil money penalty is due, as applicable, once the administrative process specified in subpart T has concluded.

(4) CMS will initiate the collection of a civil money penalty owed by an agreement holder either following the expiration of 60 days from the date of the CMS notice of determination to impose a civil money penalty, or if later, the conclusion of the administrative process specified in subpart T of this part, as applicable.

(g) Other applicable provisions. The provisions of section 1128A of the Act (except subsections (a) and (b) of section 1128A of the Act) apply to civil money penalties under this section to the same extent that they apply to a civil money penalty or procedures under section 1128A of the Act.

(h) Bankruptcy. 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 civil money penalties 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 civil money penalties imposed by CMS under this part.