Federal Upper Limits For Multiple Source Drugs

In 1976, the Department of Health and Human Services (HHS) implemented drug reimbursement rules in 45 CFR Part 19 under the authority of statues pertaining to upper payment limits for Medicaid and other programs. The authority to set an upper payment limit for services available under the Medicaid program is provided under §1902(a)(30)(A) of the Act.

Section 4401 of OBRA 1990, added §1927 to the Act on reimbursement for prescription drugs under the Medicaid program which augments the upper limits established by current regulations at 42 CFR 447.301-333. Section 1927(f)(2) of the Act contains a provision that establishes new criteria for adding new drugs to the current Federal Upper Limits (FULs).

Upper Limits Requirements

Multiple Source Drugs Definition. A multiple source drug is a drug marketed or sold by two or more manufacturers or labelers, or a drug marketed or sold by the same manufacturer or labeler under two or more different proprietary names or both under a proprietary name and without such a name.

Establishment of Limit Under 42 CFR 447.332. Under the authority of §1902(a)(30)(A) and the regulations in 42 CFR 447.332, HCFA establishes a specific upper limit for a multiple source drug if the following requirements are met:

  • All of the formulations of the drug approval by the Food and Drug Administration (FDA) have been evaluated as therapeutically equivalent in the current edition of the publication, Approval Drug Products with Therapeutic Equivalence Evaluations (including supplements or successor publications); and
  • At least three suppliers list the drug in the current editions (or updates) of published compendia of cost information for drugs available for sale nationally (e.g., Red Book, Blue Book, or Medi-Span .)

Application of New Limits Under §1927(f)(2). Under the authority of §1927(f)(2), HCFA establishes listings that identify and set upper limits for multiple source drugs of which at least three of the formulations of the drug approved by the FDA have been evaluated as therapeutically and pharmaceutically equivalent (category A) in the most current edition of its publication Approved Drug Products with Therapeutic Equivalence Evaluations (including supplements or in successor publications) regardless of whether all additional formulations are rated as such.

The Medicaid Program payment for multiple source drugs must not exceed, in the aggregate, payment levels determined by applying to each drug entity a reasonable dispensing fee, plus an amount based on the limit per unit which HCFA has determined to be equal to a 150 percent applied to the lowest price listed (in package sizes of 100 units, unless otherwise noted) in any of the published compendia of cost information of drugs.

The upper limit for multiple source drugs for which a specific limit has been established does not apply if a physician certifies in his or her own handwriting that a specific brand is medically necessary for a particular recipient. The handwritten phrase "brand necessary" or "brand medically necessary" must appear on the face of the prescription.

Medicaid Program payment will not be provided for any drug on the FUL listing for which FDA has issued a notice of an opportunity for a hearing as a result of the Drug Efficacy Study and Implementation (DESI) program, and the drug has been found to be less than effective or is identical, related or similar (IRS) to the DESI drug. The DESI drug is identified by the FDA or reported by the drug manufacturer for purposes of the Medicaid drug rebate program.

Other Drugs A drug described as an "other drug" is a brand name drug certified as medically necessary by a physician or a drug other than a multiple source drug (See §6305.1A). Payments for these drugs must not exceed, in the aggregate, payment levels determined by applying the lower of the:

  • Estimated Acquisition Costs, plus reasonable dispensing fees (established by the State and specified in the State Plan), or 
  • The provider's usual and customary charges to the general public.

Estimated Acquisition Cost (EAC) means the agency's best estimate of the price generally, and currently, paid by providers for a drug marketed or sold by a particular manufacturer or labeler in the package size most frequently purchased by providers.

The listing of the Upper Limits for Multi-Source Drugs will be issued as received from the Health Care Financing Administration.

 

 

 

 

 

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