Proposed Rule: Medicaid: Prescription Drugs

Friday,
December 22, 2006
Part IV
Department of
Health and Human
Services
Centers for Medicare & Medicaid Services
42 CFR Part 447

Medicaid Program; Prescription Drugs;
Proposed Rule
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77174 Federal Register / Vol. 71, No. 246 / Friday, December 22, 2006 / Proposed Rules
DEPARTMENT OF HEALTH AND CMS–2238–P, Mail Stop C4–26–05, considering issues and developing
HUMAN SERVICES 7500 Security Boulevard, Baltimore, MD policies. You can assist us by
21244–1850. referencing the file code CMS–2238–P
Centers for Medicare & Medicaid 4. By hand or courier. If you prefer, and the specific ‘‘issue identifier’’ that
Services you may deliver (by hand or courier) precedes the section on which you
your written comments (one original choose to comment.
42 CFR Part 447 and two copies) before the close of the Inspection of Public Comments: All
comment period to one of the following comments received before the close of
[CMS–2238–P]
addresses. If you intend to deliver your the comment period are available for
RIN 0938–AO20 comments to the Baltimore address, viewing by the public, including any
please call telephone number (410) 786– personally identifiable or confidential
Medicaid Program; Prescription Drugs 7195 in advance to schedule your business information that is included in
AGENCY: Centers for Medicare & arrival with one of our staff members. a comment. We post all comments
Medicaid Services (CMS), HHS. Room 445–G, Hubert H. Humphrey received before the close of the
Building, 200 Independence Avenue, comment period on the following Web
ACTION: Proposed rule.
SW., Washington, DC 20201; or 7500 site as soon as possible after they have
SUMMARY: This proposed rule would Security Boulevard, Baltimore, MD been received: http://www.cms.hhs.gov/
implement the provisions of the Deficit 21244–1850. eRulemaking. Click on the link
Reduction Act of 2005 (DRA) pertaining (Because access to the interior of the ‘‘Electronic Comments on CMS
to prescription drugs under the HHH Building is not readily available to Regulations’’ on that Web site to view
Medicaid program. The DRA requires persons without Federal Government public comments.
the Secretary of Health and Human identification, commenters are Comments received timely will also
Services to publish a final regulation no encouraged to leave their comments in be available for public inspection as
later than July 1, 2007. In addition, we the CMS drop slots located in the main they are received, generally beginning
would add to existing regulations lobby of the building. A stamp-in clock approximately 3 weeks after publication
certain established Medicaid rebate is available for persons wishing to retain of a document, at the headquarters of
policies that are currently set forth in a proof of filing by stamping in and the Centers for Medicare & Medicaid
CMS guidance. This rule would bring retaining an extra copy of the comments Services, 7500 Security Boulevard,
together existing and new regulatory being filed.) Baltimore, Maryland 21244, Monday
requirements in one, cohesive subpart. Comments mailed to the addresses through Friday of each week from 8:30
indicated as appropriate for hand or a.m. to 4 p.m. To schedule an
DATES: To be assured consideration,
courier delivery may be delayed and appointment to view public comments,
comments must be received at one of
received after the comment period. phone 1–800–743–3951.
the addresses provided below, no later
than 5 p.m. on February 20, 2007. Submission of comments on I. Background
paperwork requirements. You may
ADDRESSES: In commenting, please refer [If you choose to comment on issues in
submit comments on this document’s
to file code CMS–2238–P. Because of this section, please include the caption
paperwork requirements by mailing
staff and resource limitations, we cannot ‘‘Background’’ as the beginning of your
your comments to the addresses
accept comments by facsimile (FAX) comments.]
provided at the end of the ‘‘Collection
transmission.
You may submit comments in one of of Information Requirements’’ section in A. Introduction
four ways (no duplicates, please): this document. Under the Medicaid program, States
1. Electronically. You may submit For information on viewing public may provide coverage of outpatient
electronic comments on specific issues comments, see the beginning of the drugs as an optional service under
SUPPLEMENTARY INFORMATION section.
in this regulation to http:// section 1905(a)(12) of the Social
www.cms.hhs.gov/eRulemaking. Click FOR FURTHER INFORMATION CONTACT: Security Act (the Act). Section 1903(a)
on the link ‘‘Submit electronic Kimberly Howell, (410) 786–6762 (for of the Act provides for Federal financial
comments on CMS regulations with an issues related to the determination of participation (FFP) in State
open comment period.’’ (Attachments average manufacturer price and best expenditures for these drugs. In order
should be in Microsoft Word, price). for payment to be made available under
WordPerfect, or Excel; however, we Yolanda Reese, (410) 786–9898 (for section 1903 for certain drugs,
prefer Microsoft Word.) issues related to authorized generics). manufacturers must enter into a
2. By regular mail. You may mail Madlyn Kruh, (410) 786–3239 (for Medicaid drug rebate agreement as set
written comments (one original and two issues related to nominal prices). forth in section 1927(a) of the Act.
copies) to the following address ONLY: Marge Watchorn, (410) 786–4361 (for Section 1927 of the Act provides
Centers for Medicare & Medicaid issues related to manufacturer reporting specific requirements for rebate
Services, Department of Health and requirements). agreements, drug pricing submission
Human Services, Attention: CMS–2238– Gail Sexton, (410) 786–4583 (for and confidentiality requirements, the
P, P.O. Box 8015, Baltimore, MD 21244– issues related to Federal upper limits). formula for calculating rebate payments,
8015. Christina Lyon, (410) 786–3332 (for and requirements for States with respect
Please allow sufficient time for mailed issues related to physician-administered to covered outpatient drugs.
comments to be received before the drugs). This proposed rule would implement
close of the comment period. Bernadette Leeds, (410) 786–9463 (for sections 6001(a)–(d), 6002, and 6003 of
3. By express or overnight mail. You issues related to the regulatory impact the Deficit Reduction Act of 2005
may send written comments (one analysis). (DRA), Pub. L. 109–171 (Feb. 8, 2006).
original and two copies) to the following SUPPLEMENTARY INFORMATION: It also would codify those parts of
address ONLY: Centers for Medicare & Submitting Comments: We welcome section 1927 of the Act that pertain to
Medicaid Services, Department of comments from the public on all issues requirements for drug manufacturers’
Health and Human Services, Attention: set forth in this rule to assist us in fully calculation and reporting of average
Federal Register / Vol. 71, No. 246 / Friday, December 22, 2006 / Proposed Rules 77175
manufacturer price (AMP) and best chance to review the AMP data and AMP and best price all of its drugs that
price, and it would revise existing revise their systems to address the DRA are sold under a new drug application
regulations that set upper payment amendments. (NDA) approved under section 505(c) of
limits for certain covered outpatient Section 6001(c) of the DRA modifies the Federal Food, Drug, and Cosmetic
drugs. This proposed rule would also the definition of AMP to remove Act (FFDCA) when they report AMP
implement section 1903(i)(10) of the customary prompt pay discounts and best price to the Secretary.
Act, as revised by the DRA, with regard extended to wholesalers from the AMP Section 6003(b) of the DRA amends
to the denial of FFP in expenditures for calculation and requires manufacturers section 1927(c)(1)(C) of the Act to clarify
certain physician-administered drugs. to report these customary prompt pay that manufacturers must include the
Finally, the proposed rule would discounts to the Secretary. It requires lowest price available to any entity for
address other provisions of the drug the Inspector General of the Department a drug sold under an NDA approved
rebate program, to the extent those of Health and Human Services (IG) to under section 505(c) of the FFDCA
provisions are affected by the DRA. review the requirements for, and the when determining best price. Section
The Medicaid Drug Rebate Program manner in which, AMP is determined 6003(b) also amends section 1927(k) to
was established by section 4401 of the and submit to the Secretary and require that in the case of a
Omnibus Budget Reconciliation Act of Congress any recommendations for manufacturer that approves, allows, or
1990 (OBRA 90), Pub. L. 101–508 (Nov. changes no later than June 1, 2006. otherwise permits any of its drugs to be
5, 1990) and subsequently modified by Finally, it requires the Secretary to sold under an NDA approved under
the Veterans Health Care Act of 1992 promulgate a regulation that clarifies the section 505(c) of the FFDCA, the AMP
(VHCA), Pub. L. 102–585 (Nov. 4, 1992) requirements for, and the manner in shall be calculated to include the
and the Omnibus Budget Reconciliation which, AMP is determined no later than average price paid for such drugs by
Act of 1993, Pub. L. 103–66 (Aug. 10, July 1, 2007, taking into consideration wholesalers for drugs distributed to the
1993). These provisions were any IG recommendations. retail pharmacy class of trade. Section
implemented primarily through the Section 6001(d) of the DRA requires 6003(c) of the DRA provides that the
national drug rebate agreement (56 FR manufacturers to report information on amendments made by section 6003 are
7049 (Feb. 21, 1991)) and other informal sales at nominal price to the Secretary effective January 1, 2007.
program releases, which provide for calendar quarters beginning on or The statutory provisions in the DRA
standards for manufacturer reporting after January 1, 2007. It also specifies that affect the Medicaid Drug Rebate
and rebate calculations. The statutory the entities to which nominal price Program, as well as the regulatory
changes that affect the provisions of this applies. It limits the merely nominal provisions we are proposing to
proposed rule are described below. exclusion to sales at nominal prices to implement the program, are discussed
the following: A covered entity in greater detail in the section entitled
B. Changes Made by the Deficit ‘‘Provisions of the Proposed
described in section 340B(a)(4) of the
Reduction Act of 2005 Regulations’’ below.
Public Health Service Act (PHSA), an
Section 6001(a) of the DRA amends intermediate care facility for the
section 1927(e) of the Act to revise the C. Notice of Proposed Rulemaking
mentally retarded (ICF/MR), a State- Published September 19, 1995
formula CMS uses to set Federal upper owned or operated nursing facility, and
limits (FULs) for multiple source drugs. any other facility or entity that the On September 19, 1995, CMS (then
Effective January 1, 2007, the upper Secretary determines is a safety net the Health Care Financing
limit for multiple source drugs shall be provider to which sales of such drugs at Administration) published a notice of
established at 250 percent of the average a nominal price would be appropriate, proposed rulemaking (NPRM) in the
manufacturer price (AMP) (as computed based on certain factors such as type of Federal Register (60 FR 48442 (Sept. 19,
without regard to customary prompt pay facility or entity, services provided by 1995)). The purpose of the 1995 NPRM
discounts extended to wholesalers) for the facility or entity, and patient was to propose regulations pertaining to
the least costly therapeutic equivalent. population. the Medicaid Drug Rebate Program and
Section 6001(b) of the DRA amends Section 6001(e) of the DRA amends to address the national rebate agreement
section 1927(b)(3) of the Act to create a section 1927 of the Act to provide for a (56 FR 7049 (Feb. 21, 1991)). On August
requirement that manufacturers report survey of retail prices and State 29, 2003, CMS finalized two of the
certain prices to the Secretary monthly. performance rankings. These provisions provisions in the 1995 NPRM through a
It also requires the Secretary to provide are not addressed in this proposed rule. final rule with comment period (68 FR
AMP to States on a monthly basis Section 6001(f) of the DRA makes 51912). These regulations require
beginning July 1, 2006 and post AMP on minor amendments to section 1927(g) of manufacturers to retain records for data
a Web site at least quarterly. We are the Act which are self-implementing. used to calculate AMP and best price for
aware of concerns that the AMPs Section 6001(g) of the DRA provides three years from when AMP and best
released to the States beginning July 1, that the amendments in section 6001 are price are reported to CMS. We also
2006, will not reflect changes to the effective on January 1, 2007, unless provided that manufacturers should
definition of AMP made by the DRA and otherwise noted. report revisions to AMP and best price
proposed in this rule. While we made Section 6002 of the DRA amends for a period not to exceed twelve
the AMPs available to the States section 1903(i)(10) of the Act by quarters from the quarter in which the
beginning July 1, 2006, States should prohibiting Medicaid FFP for physician- data are due. On November 26, 2004, we
keep these data confidential in administered drugs unless States submit published final regulations (69 FR
accordance with section 1927(b)(3)(D) of the utilization data described in section 68815) that require a manufacturer to
the Act. Section 6001(b) of the DRA 1927(a) of the Act. It also amends retain pricing data for 10 years from the
revises these confidentiality provisions section 1927 of the Act to require the date the manufacturer reports that data
to permit States to use AMP to calculate submission of utilization data for to CMS and for an additional time frame
payment rates; however, these physician-administered drugs. where the manufacturer is the subject of
confidentiality amendments are not Section 6003(a) of the DRA amends an audit or government investigation.
effective until January 1, 2007. This six- section 1927(b)(3)(A) of the Act to Due to the time that has elapsed since
month period will give the States a require manufacturers to include within publication of the 1995 NPRM and
changes in the prescription drug separately or outside the bundled checking the computer for information
industry, we do not plan to finalize the arrangement. For bundled sales, the about an individual’s coverage,
other provisions of that proposed rule, discounts are allocated proportionately performing drug utilization review and
and any comments on the 1995 NPRM to the dollar value of the units of each preferred drug list review activities,
are outside the scope of this proposed drug sold under the bundled measurement or mixing of the covered
rule. This proposed rule does not arrangement. For bundled sales where outpatient drug, filling the container,
address the entire Medicaid Drug Rebate multiple drugs are discounted, the beneficiary counseling, physically
Program, but focuses primarily on the aggregate value of all the discounts providing the completed prescription to
provisions of the DRA that address the should be proportionately allocated the Medicaid beneficiary, delivery,
Medicaid Drug Rebate Program. across all the drugs in the bundle. special packaging, and overhead
Consumer Price Index ‘‘ Urban (CPI– associated with maintaining the facility
II. Provisions of the Proposed U) would be defined the same as it is and equipment necessary to operate the
Regulations in the national rebate agreement, except pharmacy; and
Basis and Purpose of Subpart I—Section we would replace ‘‘U.S. Department of (3) Does not include administrative
447.500 Commerce’’ with ‘‘U.S. Department of costs incurred by the State in the
Labor’’ to reflect that the Department of operation of the covered outpatient drug
This subpart would implement Labor is now responsible for updating benefit including systems costs for
specified provisions of sections 1927, the CPI–U. Therefore, the term CPI–U interfacing with pharmacies.
1903(i)(10), and 1902(a)(54) of the Act would mean the index of consumer Innovator multiple source drug would
related to implementation of the DRA. It prices developed and updated by the be defined based on the definition in
would include requirements related to U.S. Department of Labor. For purposes section 1927(k)(7)(A)(ii) of the Act. We
State plans, FFP for drugs, and the of this subpart, it would be the CPI for would also use the definition from the
payment for covered outpatient drugs all urban consumers (U.S. average) for national rebate agreement. Innovator
under Medicaid. In this rule, we also the month before the beginning of the multiple source drug would mean a
propose to move the existing Medicaid calendar quarter for which the rebate is multiple source drug that was originally
drug provisions in the Federal paid. marketed under an original NDA
regulations from subpart F to subpart I Dispensing fee would be defined approved by the Food and Drug
of 42 CFR part 447. similarly to how it is defined for the Administration (FDA). It would include
Definitions—Section 447.502 Medicare Part D program in 42 CFR a drug product marketed by any cross-
423.100 in light of some of the parallels licensed producers or distributors
This section of the rule would include of Part D to Medicaid. We are defining operating under the NDA and a covered
definitions of key terms used in 42 CFR this term in order to assist States in their outpatient drug approved under an
part 447, subpart I. We propose to use evaluation of factors in establishing a NDA, Product License Approval,
definitions from several sources, reasonable dispensing fee to pharmacy Establishment License Approval or
including the Act, Federal regulations, providers. We note that while we Antibiotic Drug approval. We believe
program guidance, and the national propose to define this term, we do not this definition is consistent with our
rebate agreement. We invite the public intend to mandate a specific formula or understanding of the drug rebate statute
to provide comments on the terms we methodology which the States must use and section 6003 of the DRA which
have chosen to define as well as the to determine the dispensing fee. The includes within the definition those
proposed definitions described below. formula is consistent with our drugs which often receive a certain
Bona fide service fee would mean a regulation that defines estimated amount of patent protection and/or
fee paid by a manufacturer to an entity, acquisition costs which give States market exclusivity.
that represents fair market value for a flexibility to determine EAC. However, Manufacturer would be defined based
bona fide, itemized service actually consistent with a recommendation made on the definition in section 1927(k)(5) of
performed on behalf of the manufacturer by the Office of the Inspector General the Act and the national rebate
that a manufacturer would otherwise (OIG) in its report, ‘‘Determining agreement. It would also mirror the
perform (or contract for) in the absence Average Manufacturer Prices for current definition of manufacturer used
of the service arrangement, and that is Prescription Drugs under the Deficit by Medicare in the regulations regarding
not passed in whole or in part to a client Reduction Act of 2005,’’ (A–06–06– manufacturer’s average sales price (ASP)
or customer of an entity, whether or not 00063) May 2006, we encourage States data. For purposes of the Medicaid
the entity takes title to the drug. to analyze the relationship between program, manufacturer would be
Brand name drug would mean a AMP and pharmacy acquisition costs to defined as any entity that possesses
single source or innovator multiple ensure that the Medicaid program legal title to the NDC for a covered drug
source drug. appropriately reimburses pharmacies for or biological product and—
Bundled sale would mean an estimated acquisition costs. (a) Is engaged in the production,
arrangement regardless of physical Dispensing fee would be defined as preparation, propagation, compounding,
packaging under which the rebate, the fee which— conversion, or processing of covered
discount, or other price concession is (1) Is incurred at the point of sale and outpatient drug products, either directly
conditioned upon the purchase of the pays for costs other than the ingredient or indirectly by extraction from
same drug or drugs of different types cost of a covered outpatient drug each substances of natural origin, or
(that is, at the nine-digit National Drug time a covered outpatient drug is independently by means of chemical
Code (NDC) level) or some other dispensed; synthesis, or by a combination of
performance requirement (e.g., the (2) Includes only pharmacy costs extraction and chemical synthesis; or
achievement of market share, inclusion associated with ensuring that possession (b) Is engaged in the packaging,
or tier placement on a formulary), or of the appropriate covered outpatient repackaging, labeling, relabeling, or
where the resulting discounts or other drug is transferred to a Medicaid distribution of covered outpatient drug
price concessions are greater than those beneficiary. Pharmacy costs include, but products and is not a wholesaler of
which would have been available had are not limited to, any reasonable costs drugs or a retail pharmacy licensed
the bundled drugs been purchased associated with a pharmacist’s time in under State law.
(c) With respect to authorized generic Department of Veterans Affairs (DVA) in excluding free goods (i.e., drugs or any
products, the term ‘‘manufacturer’’ will administering the Federal Supply other items given away, but not
also include the original holder of the Schedule (FSS). Nominal price would contingent on any purchase
NDA. mean a price that is less than 10 percent requirements), and
(d) With respect to drugs subject to of AMP in the same quarter for which • Net sales means quarterly gross
private labeling arrangements, the term the AMP is computed. sales revenue less cash discounts
‘‘manufacturer’’ will also include those Rebate period is defined in section allowed and all other price reductions
entities that do not possess legal title to 1927(k)(8) of the Act as a calendar (other than rebates under section 1927
the NDC. quarter or other period specified by the of the Act) which reduce the actual
Multiple source drug is currently Secretary with respect to the payment of price paid.
defined in Federal regulations at section rebates under the national rebate Consistent with these provisions, it
42 CFR 447.301. We propose removing agreement. The Medicaid Drug Rebate has been our policy that in order to
the definition from that section and Program currently operates using a provide a reflection of market
revising the definition to reflect the calendar quarter for the rebate period. transactions, the AMP for a quarter
DRA amendments to section 1927 of the While AMPs would be reported should be adjusted by the manufacturer
Act. We would define the term multiple monthly for purposes of calculating if cumulative discounts or other
source drug to mean, with respect to a FULs and for release to States, we can arrangements subsequently adjust the
rebate period, a covered outpatient drug find no evidence in the legislative prices actually realized.
for which there is at least one other drug history of the DRA that Congress AMP should be adjusted for bundled
product which— intended to change the definition of sales (as defined above) by determining
(1) Is rated as therapeutically rebate period. Therefore, we would the total value of all the discounts on all
equivalent. For the list of drug products define rebate period as a calendar drugs in the bundle and allocating those
rated as therapeutically equivalent, see quarter. discounts proportionately to the
the FDA’s most recent publication of Single source drug is defined in respective AMP calculations. The
‘‘Approved Drug Products with section 1927(k)(7)(A)(iv) of the Act as a aggregate discount is allocated
Therapeutic Equivalence Evaluations’’ covered outpatient drug which is proportionately to the dollar value of
which is available at http:// produced or distributed under an the units of each drug sold under the
www.fda.gov/cder/orange/default.htm original NDA approved by the FDA, bundled arrangement. Where discounts
or can be viewed at the FDA’s Freedom including a drug product marketed by are offered on multiple products in a
of Information Public Reading Room at any cross-licensed producers or bundle, the aggregate value of all the
5600 Fishers Lane, rm. 12A–30, distributors operating under the NDA. It discounts should be proportionately
Rockville, MD 20857; is further defined in the national rebate allocated across all the drugs in the
(2) Is pharmaceutically equivalent and agreement as a covered outpatient drug bundle. The average unit price means a
bioequivalent, as determined by the approved under a Product License manufacturer’s quarterly sales included
FDA; and Approval, Establishment License in AMP less all required adjustments
(3) Is sold or marketed in the United divided by the total units sold and
Approval, or Antibiotic Drug Approval.
States during the rebate period. included in AMP by the manufacturer
National drug code (NDC) would be We propose to define the term single
source drug as it is defined in the statute in a quarter.
defined as it is used by the FDA and
based on the definition used in the and the national rebate agreement. Provisions of the DRA
national rebate agreement. For purposes Determination of Average Manufacturer Section 6001(c)(1) of the DRA
of this subpart, it would mean the 11- Price—Section 447.504 amended section 1927(k)(1) of the Act to
digit numerical code maintained by the revise the definition of AMP to exclude
FDA that indicates the labeler, product, Background
customary prompt pay discounts to
and package size, unless otherwise Prior to the DRA, section 1927(k)(1) of wholesalers, effective January 1, 2007.
specified in the regulation as being the Act specified that the AMP with Section 6001(c)(3) of the DRA requires
without respect to package size (9-digit respect to a covered outpatient drug of the OIG to review the requirements for
numerical code). a manufacturer for a rebate period is the and manner in which AMPs are
National rebate agreement is average unit price paid to the determined and recommend changes to
described in section 1927 of the Act. manufacturer for the drug in the United the Secretary by June 1, 2006. Section
Section 1927(b) of the Act outlines the States by wholesalers for drugs 6001(c)(3) of the DRA requires the
terms of the rebate agreement, including distributed to the retail pharmacy class Secretary to clarify the requirements for
reporting timeframes, manufacturer of trade after deducting customary and the manner in which AMPs are
responsibilities, penalties, and prompt pay discounts. determined by promulgating a
confidentiality of pricing data. We The national rebate agreement (56 FR regulation no later than July 1, 2007,
propose that the national rebate 7049 (Feb. 21, 1991)) further specifies taking into consideration the OIG’s
agreement would continue to be defined that: recommendations.
as the rebate agreement developed by • Direct sales to hospitals, health
CMS and entered into by CMS on behalf maintenance organizations (HMOs) and OIG Recommendations on AMP
of the Secretary or his designee and a wholesalers, where the drug is relabeled In accordance with 6001(c)(3) of the
manufacturer to implement section 1927 under that distributor’s national drug DRA, the OIG issued its report,
of the Act. code number, and FSS prices are not ‘‘Determining Average Manufacturer
Nominal price would be defined as it included in the calculation of AMP; Prices for Prescription Drugs under the
is in the national rebate agreement. We • AMP includes cash discounts and Deficit Reduction Act of 2005,’’ (A–06–
propose incorporating this definition in all other price reductions (other than 06–00063), in May 2006. In this report,
this rule because it is the standard rebates under section 1927 of the Act), the OIG recommended that CMS:
presently used in the Medicaid program which reduce the actual price paid; • Clarify the requirements in regard
and the Medicare Part B program, and • AMP is calculated as net sales to the definition of retail pharmacy class
is similar to that used by the divided by the number of units sold, of trade and treatment of pharmacy
benefit manager (PBM) rebates and The statute mandates that, effective Manufacturers to Better Implement the
Medicaid sales and January 1, 2007, the Secretary use AMP Program,’’ (A–06–91–00092), November
• Consider addressing issues raised when computing FULs. For this 1992 and GAO in its report ‘‘Medicaid
by industry groups, such as: purpose, we would exclude certain Drug Rebate Program—Inadequate
» Administrative and service fees, outlier payments (see our discussion in Oversight Raises Concerns about
» Lagged price concessions and the FULs section for a more complete Rebates Paid to States,’’ (GAO–05–102),
returned goods, description of outlier exclusions). The February 2005.
» The frequency of AMP reporting, statute also requires that AMP be We believe, based in part on the OIG
» AMP restatements, and provided to States monthly and be and GAO reports, that retail pharmacy
» Base date AMP. posted on a public Web site. While there class of trade means that sector of the
The OIG also recommended that the is no requirement that States use AMPs drug marketplace, similar to the
Secretary direct CMS to: to set payment amounts, we believe the marketplace for other goods and
• Issue guidance in the near future Congress intended that States have drug services, which dispenses drugs to the
that specifically addresses the pricing data based on actual prices, in general public and which includes all
contrast to previously available data that price concessions related to such goods
implementation of the AMP-related
did not necessarily reflect actual and services. As such, we would
reimbursement provisions of the DRA
manufacturer prices of sales to the retail exclude from AMP the prices of sales to
and
pharmacy class of trade. We considered nursing home pharmacies (long-term
• Encourage States to analyze the
several options to define what prices care pharmacies) because nursing home
relationship between AMP and
should be included in AMP. We pharmacies do not dispense to the
pharmacy acquisition cost to ensure that
considered including only prices of general public. We would include in
the Medicaid program appropriately
sales to retail pharmacies that dispense AMP the prices of sales and discounts
reimburses pharmacies for estimated to mail order pharmacies. We
drugs to the general public (e.g.,
acquisition costs. considered limiting mail order
independent and chain pharmacies) in
We address these recommendations as pharmacy prices to only those prices
retail pharmacy class of trade and
we discuss provisions of this proposed that are offered to all pharmacies under
removing prices to mail order
rule in the section below. similar terms and conditions. However,
pharmacies, nursing home pharmacies
Definition of Retail Pharmacy Class of (long-term care pharmacies), and PBMs. given our belief that such prices are
Trade and Determination of AMP This definition would address the retail simply another form of how drugs enter
pharmacy industry’s contentions that an into the retail pharmacy class of trade,
We recognize that there have been we have decided to maintain these
AMP used for reimbursement to retail
concerns expressed regarding AMP prices in the definition. We note that
pharmacies should only reflect prices of
because of inconsistencies in the way even were we to incorporate this
sales to those pharmacies which
manufacturers determine AMP, changes change, retail pharmacies may not be
dispense drugs to the general public.
in the drug marketplace, and the The exclusion of prices to mail order able to meet the terms and conditions
introduction of newer business practices pharmacies, nursing home facilities placed on mail order pharmacies to be
such as payment of services fees. We (long-term care facilities), and PBMs eligible for some manufacturer price
also realize that in light of the DRA would substantially reduce the number concessions. CMS seeks public
amendments, AMP will serve two of transactions included in AMP. comment on the inclusion of all mail
distinct purposes: For drug rebate Removal of these prices would simplify order pharmacy prices in our definition
liability and for payments. For the AMP calculations for manufacturers of retail pharmacy class of trade for
purpose of determining drug rebate because it is our understanding that purposes of inclusion in the
liability, drug manufacturers would certain data (e.g., PBM pricing data) are determination of AMP.
generally benefit from a broad definition difficult for manufacturers to capture. In We recognize that a major factor
of retail pharmacy class of trade which addition, removal of these prices would contributing to the determination of
would include entities that purchase address differing interpretations of CMS AMP is the treatment of PBMs. These
drugs at lower prices and which would policy identified by the OIG and the entities have assumed a significant role
lower rebate liability. Including these Government Accountability Office in drug distribution since the enactment
lower prices would decrease the AMP, (GAO) due to the lack of a clear of the Medicaid Drug Rebate Program in
decreasing manufacturers’ rebate definition of AMP or specific guidance 1990. We are considering how PBM
liability. The retail pharmacy industry regarding which retail prices should be rebates, discounts, or other price
might benefit from a narrow definition included in AMP. However, such a concessions should be recognized for
of retail pharmacy prices that would be removal would not be consistent with purposes of AMP calculations.
limited to certain higher priced sales past policy, as specified in manufacturer A GAO report ‘‘Medicaid Drug Rebate
given that, in light of the DRA Releases 28 and 29 (http:// Program—Inadequate Oversight Raises
amendments, States might use AMP to www.cms.hhs.gov/ Concerns about Rebates Paid to States,’’
calculate pharmacy payment rates. MedicaidDrugRebateProgram/ (GAO–05–102), in February 2005,
Excluding low-priced sales would 03_DrugMfrReleases.asp#TopOfPage), indicated that the Medicaid Drug Rebate
increase AMP, increasing, in all would likely result in a higher AMP, Program does not clearly address certain
likelihood, manufacturers’ rebate and would result in an increase in drug financial concessions negotiated by
payments. The pharmacy industry manufacturers’ rebate liabilities. PBMs. The GAO recommended that we
believes that mail order pharmacies and We also considered not revising the issue clear guidance on manufacturer
nursing home pharmacies (long-term entities included in the retail pharmacy price determination methods and the
care pharmacies) pay less for drugs than class of trade. However, this would not definitions of AMP and best price, and
retail pharmacies (e.g., independents address the issues identified by the OIG update such guidance as additional
and chain pharmacies), and thus the in its report, ‘‘Medicaid Drug Rebates: issues arise.
inclusion of such prices would lower The Health Care Financing The issue regarding PBMs was also
AMP below the price paid by such retail Administration Needs to Provide addressed in the recently issued OIG
pharmacies. Additional Guidance to Drug report, ‘‘Determining Average
Manufacturer Prices for Prescription whereby specific discounts, Finally, we request comments on any
Drugs under the Deficit Reduction Act chargebacks, or rebates are provided to other issues that we should take into
of 2005,’’ (A–06–06–00063), in May PBMs which, in turn, are passed on to account in making our final decisions.
2006. In this report, the OIG the purchaser. Those releases recognize These include, but may not be limited
recommended that we clarify the that certain prices provided by to, possible Federal and State budgetary
treatment of PBM rebates. This report manufacturers to PBMs should be impacts (our savings estimates assumed
says that manufacturers treat rebates included within AMP calculations. In no budgetary impacts as generic drugs
and fees paid to PBMs in the calculation accordance with those releases, our are rarely, if ever, subject to PBM price
of AMP in three different ways. position has been that PBMs have no adjustments in this context); possible
Specifically they found that effect on the AMP calculations unless future evolution in industry pricing and
manufacturers (1) did not subtract the PBM is acting as a wholesaler as management practices (e.g., growth of
rebates or fees paid to PBMs from the defined in the rebate agreement. We are ‘‘preferred’’ generic drugs); and possible
AMP calculation; (2) subtracted the concerned, however, that this position impacts on reimbursement for brand
rebates or fees paid to PBMs; or (3) may unduly exclude from AMP certain name drugs under Medicaid. We are
subtracted a portion of the PBMs rebates PBM prices and discounts which have generally interested in comments on
or fees from the AMP calculation. an impact on prices paid to the how and to what extent PBMs act as
In developing this proposed rule, we manufacturer. ‘‘wholesalers.’’ We propose to
considered including all rebates, We believe that AMP should be incorporate the explicitly listed
discounts and other price concessions calculated to reflect the net drug price exclusions in section 1927 of the Act,
from PBMs in the determination of recognized by the manufacturer, and in the national rebate agreement,
AMP. We also considered excluding inclusive of any price adjustments or which are direct sales to hospitals,
rebates, discounts and other price discounts provided directly or HMOs/managed care organizations
concessions from PBMs in the indirectly by the manufacturer. We are (MCOs), wholesalers where the drug is
determination of AMP. interested in comments on this relabeled under that distributor’s NDC
One of the most difficult issues with proposal, including the comments on and FSS prices.
PBM discounts, rebates, or other price The specific terms we propose to
the operational difficulties of including
concessions is that manufacturers clarify and the proposed clarifications
such PBM arrangements within AMP
contend that they do not know what follow.
calculations.
part of these discounts, rebates, or other Retail Pharmacy Class of Trade: We
price concessions is kept by the PBM for We recognize that the statute defines propose to include in the definition of
the cost of its activities and profit, what AMP as the average price paid to the retail pharmacy class of trade any entity
part is passed on to the health insurer manufacturer by wholesalers for drugs that purchases prescription drugs from
or other insurer or other entity with distributed to the retail pharmacy class a manufacturer or wholesaler for
which the PBM contracts, and what of trade; however, in light of our dispensing to the general public (e.g.,
part, if any, that entity passes on to understanding of congressional intent, retail, independent, chain and mail
pharmacies. Despite the difficulties of we believe that the definition is meant order pharmacies), except as otherwise
including certain PBM rebates, to capture discounts and other price specified by the statute or regulation
discounts or other price concessions in adjustments, regardless of whether such (such as, HMOs, hospitals).
AMP, excluding all of these price discounts or adjustments are provided PBM Price Concessions: We proposed
concessions could result in an artificial directly or indirectly by the to include any rebates, discounts or
inflation of AMP. For this reason, we manufacturer. We invite comments on other price adjustments provided by the
propose to include PBM rebates, this definition and whether AMP should manufacturer to the PBM that affect the
discounts, or other price concessions for be calculated to include all adjustments net price recognized by the
drugs provided to the retail pharmacy that affect net drug prices. manufacturer for drugs provided to
class of trade for the purpose of We acknowledge that there are many entities in the retail pharmacy class of
determining AMP; however, we invite PBM/manufacturer arrangements. To trade.
comments on whether this proposal is the extent manufacturers are offering Customary Prompt Pay Discounts:
operationally feasible. rebates, discounts, or other price Prior to the DRA, neither the statute nor
As discussed more fully below, we concessions to the PBM that are not the national rebate agreement defined
have proposed that PBM rebates and bona fide service fees, we propose that customary prompt pay discounts. The
price concessions that adjust the these lower prices should be included DRA revises the definition of AMP to
amount received by the manufacturer in the AMP calculations. We request exclude customary prompt pay
for drugs distributed to the retail comments on the operational difficulties discounts extended to wholesalers;
pharmacy class of trade should be of tracking these rebates, discounts, or however, it does not revise or define
included in the calculation of AMP. We chargebacks provided to a PBM for customary prompt pay discounts. We
acknowledge that manufacturers have a purposes of calculating AMP and on the propose to define customary prompt pay
variety of arrangements with PBMs and inclusion of all such price concessions discounts as any discount off the
thus invite comments on all aspects of in AMP. Specifically, we solicit purchase price of a drug routinely
our proposal as explained below. comments on the extent to which CMS offered by the manufacturer to a
The rebate agreement defines AMP to should or should not define in wholesaler for prompt payment of
include cash discounts and all other regulation which rebates, discounts, or purchased drugs within a specified time
price reductions (other than rebates price concessions provided to PBMs of the payment due date.
under section 1927 of the Act), which should be included in AMP and how Treatment of Medicaid Sales: The OIG
reduce the actual price paid to the best to measure these. Also, we solicit recommended that we should address
manufacturer for drugs distributed to public comment on how these PBM whether AMP should include Medicaid
the retail pharmacy class of trade. As price concessions should be reported to prices of sales; i.e., prices of sales where
noted in Release 28 and reiterated in CMS to assure that appropriate price the end payer for the drug is the
Release 29, manufacturers have adjustments are captured and included Medicaid program. In its May 2006
developed a myriad of arrangements in the determination of AMP. report, the OIG noted confusion on this
issue and recommended that we clarify prices of sales through a Medicare Part noted in its report, ‘‘Determining
that these prices of sales are to be D prescription drug plan (PDP), a Average Manufacturer Prices for
included in AMP. It is our position that Medicare Advantage prescription drug Prescription Drugs under the Deficit
these sales are included in AMP because plan (MA–PD), or a qualified retiree Reduction Act of 2005,’’ (A–06–06–
they are not expressly excluded in the prescription drug plan for covered Part 00063), May 2006, that confusion exists
statute. In this proposed rule, we would D drugs provided on behalf of Part D about the treatment of fees, such as
also clarify that prices to State eligible individuals should be included service fees negotiated between a
Children’s Health Insurance Program in the AMP calculation. Like the manufacturer and pharmaceutical
Title XIX (SCHIP) through an expanded Medicaid program, PDPs and MA–PDs distributor. Some believe that these fees
Medicaid program are covered under do not directly purchase drugs, but are should not be included in AMP because
the provisions of section 1927 of the Act usually third party payers. As with the manufacturer does not know if the
and generally subsumed in Medicaid Medicaid sales, these sales are included fees act to reduce the price paid by the
sales. As a general matter, Medicaid in AMP to the extent they are sales to end purchasers. Others believe such fees
does not directly purchase drugs from the retail pharmacy class of trade. should be included in the calculation,
manufacturers or wholesalers but Therefore, we believe these prices of which would reduce AMP because they
instead reimburses pharmacies for these sales should not be backed out of the serve as a price concession. For the
drugs. Therefore, Medicaid sales are AMP. Rebates paid by the manufacturer same reason as for sales to PBMs, we
determined by the entities that are to the PDP or MA–PD should be propose that all fees except fees paid for
actually in the sales chain and because included in the calculation of AMP. bona fide services should be included in
Medicaid reimburses pharmacies for SPAP price concessions: In this AMP. We propose that bona fide service
drugs for Medicaid beneficiaries, proposed rule, we also propose to fees means fees paid by a manufacturer
integrated into the chain of sales clarify how the prices to State to an entity, which represent fair market
otherwise included in AMP. pharmaceutical assistance programs value for a bona fide, itemized service
In this proposed rule, we would (SPAPs) should be treated. Like the actually performed on behalf of the
clarify that the units associated with Medicaid program, PDPs, and MA–PDs, manufacturer that the manufacturer
Medicaid sales should be included as SPAPs do not directly purchase drugs, would otherwise perform (or contract
part of the total units in the AMP but are generally third-party payers. As for) in the absence of the service
calculation. We have proposed that with Medicaid sales, these sales are arrangement, and which are not passed
AMP be calculated to include all sales included in AMP to the extent the sales in whole or in part to a client or
and associated discounts and other are to an entity included in the retail customer of an entity, whether or not
price concessions provided by the pharmacy class of trade. Therefore, we the entity takes title to the drug.
manufacturer for drugs distributed to propose that SPAP sales should not be Medicare Part B also adopted this
the retail pharmacy class of trade unless backed out of the AMP calculation. definition in its final rule with comment
the sale, discount, or other price Rebates paid by the manufacturer to the period that was published on December
concession is specifically excluded by SPAP should be included in the 1, 2006 (71 FR 69623–70251) that
the statute or regulation or is provided calculation of AMP. implemented the ASP provisions
to an entity excluded by statute or Prices to other Federal Programs: We
enacted in the Medicare Prescription
regulation. Therefore, we would clarify propose that any prices on or after
Drug, Improvement, and Modernization
that rebates paid to States under the October 1, 1992, to the IHS, the DVA,
Act of 2003 (MMA). We are not
Medicaid Drug Rebate Program should a State home receiving funds under
proposing to define fair market value.
be excluded from AMP calculations but section 1741 of title 38, United States
However, CMS invites comments from
that price concessions associated with Code, the Department of Defense (DoD),
the Public Health Service (PHS), or a the public regarding an appropriate
the sales of drugs in the retail pharmacy
covered entity described in subsection definition for fair market value.
class of trade which are provided to
Medicaid patients should be included. 1927(a)(5)(B) of the Act (including Direct Patient Sales: In response to
In this proposed rule, we also propose inpatient prices charged to hospitals manufacturers’ questions, CMS has
to clarify how the prices of sales to State described in section 340B(a)(4)(L) of the stated previously that covered
Children’s Health Insurance Program PHSA); any prices charged under the outpatient drugs sold to patients
Title XXI (SCHIP) non-Medicaid FSS of the GSA; and any depot prices through direct programs should be
expansion programs should be treated. (including Tricare) and single award included in the calculation of AMP.
Like the Medicaid program, SCHIP non- contract prices, as defined by the These sales are usually for specialty
Medicaid expansion programs do not Secretary, of any agency of the Federal drugs through a direct distribution
directly purchase drugs. Because such government are excluded from the arrangement, where the manufacturer
programs are not part of the Medicaid calculation of AMP. We propose that the retains ownership of the drug and pays
program, they are not covered under the prices to these entities should be either an administrative or service fee to
provisions of section 1927 of the Act. As excluded from AMP because the prices a third party for functions such as the
with Medicaid sales, these sales are to these entities are not available to the storage, delivery and billing of the drug.
included in AMP to the extent they retail pharmacy class of trade. Some manufacturers have contended
concern sales at the retail pharmacy Administrative and Service Fees: that direct patient sales for covered
class of trade. Therefore, these sales Current Medicaid drug rebate policy is outpatient drugs sold by a manufacturer
should not be backed out of the AMP that administrative fees which include through a direct distribution channel
calculation to the extent that such sales service fees and distribution fees, should not qualify for inclusion in the
are included within sales provided to incentives, promotional fees, calculation of AMP because the
the retail pharmacy class of trade. chargebacks and all discounts or Medicaid rebate statute and the national
Rebates and units associated with those rebates, other than rebates under the rebate agreement do not address covered
sales should also be included in the Medicaid drug program, should be outpatient drugs that are not sold to
calculation of AMP. included in the calculation of AMP, if wholesalers and/or not distributed in
Treatment of Medicare Part D sales: those sales are to an entity included in the retail pharmacy class of trade. We
We would clarify that the treatment of the calculation of AMP. The OIG has believe that the distributor is acting as
a wholesaler and these sales are to the clarifications of AMP through the covered Part D drugs provided on behalf
retail pharmacy class of trade. In light issuance of program releases and by of Part D eligible individuals.
of this, we propose in this regulation posting the clarifications on the CMS The statute further specifies that:
that these sales and the rebates Web site as needed. • Best price includes cash discounts,
associated with these sales to patients free goods that are contingent on any
Requirements for Average Manufacturer purchase requirement, volume
through direct programs would be
included in AMP. CMS invites Price discounts and rebates (other than
comments from the public on this To implement the provisions set forth rebates under section 1927 of the Act),
proposed policy. in sections 6001 and 6003 of the DRA which reduce the price paid;
Returned Goods: Current Medicaid related to AMP, we propose a new • Best price must be determined on a
Drug Rebate Program policy is that § 447.504. In § 447.504(a), we propose a unit basis without regard to special
returned goods are credited back to the revised definition of AMP and clarify packaging, labeling or identifiers on the
manufacturer in either the quarter of that AMP is determined without regard dosage form or product or package;
sale or quarter of receipt. This has to customary prompt pay discounts • Best price must not take into
caused difficulty for some extended to wholesalers. In account prices that are merely nominal
manufacturers when these returns have § 447.504(b), we propose to define in amount.
substantially reduced AMP in a quarter Consistent with these provisions and
average unit price. In § 447.504(c), we
or resulted in a negative AMP. In light the national rebate agreement, it has
propose to define customary prompt pay
of these concerns, we propose to been our policy that in order to reflect
discount. In § 447.504(d), we propose to
exclude returned goods from the market transactions, the best price for a
define net sales. In § 447.504(e), we
calculation of AMP when returned in rebate period should be adjusted by the
propose to define retail pharmacy class
good faith. CMS considers that goods manufacturer if cumulative discounts or
of trade. In § 447.504(f), we propose to
are being returned in good faith when other arrangements subsequently adjust
define wholesaler. In § 447.504(g), we
they are being returned pursuant to the prices actually realized.
would describe in detail the sales, Best price should be adjusted for any
manufacturer policies which are not rebates, discounts, or other price
designed to manipulate or artificially bundled sale. The drugs in a ‘‘bundle’’
concessions that must be included in do not have to be physically packaged
inflate or deflate AMP. The Medicare AMP. In § 447.504(h), we would
Part B program excludes returned goods together to constitute a ‘‘bundle,’’ just
describe the sales, rebates, discounts, or part of the same bundled transaction.
from the calculation of ASP. The other price concessions that must be
exclusion of returned goods will allow Section 1927(c)(1)(C)(ii)(I) of the Act
excluded from AMP. In § 447.504(i), we specifies that best price must include
the manufacturer to calculate and report
would provide further clarification free goods that are contingent on any
an AMP that is more reflective of its true
about how manufacturers should purchase requirement. Thus, only those
pricing policies to the retail pharmacy
account for price reductions and other free goods that are not contingent on
class of trade in the reporting period. It
pricing arrangements which should be any purchase requirements may be
lessens the administrative burden and
included in the calculation of AMP. excluded from best price.
problems associated with allocating the
returned goods back to the reporting Determination of Best Price—Section Section 103(e) of the MMA modified
period in which they were sold, as well 447.505 the definition of best price by excluding
as eliminating artificially low, zero or prices which are negotiated by a PDP
negative AMPs that may result from Prior to the DRA, section 1927(c)(1)(C) under part D of title XVIII of the Act, by
these adjustments. of the Act provided that manufacturers any MA–PD plan under part C of such
Manufacturer Coupons: In this must include in their best price title with respect to covered part D
proposed rule, we propose to clarify calculation, for a single source or drugs, or by a qualified retiree
how manufacturer coupons should be innovator multiple source drug, the prescription drug plan (as defined in
treated. The treatment of manufacturer lowest price available from the section 1860D–22(a)(2) of the Act) with
coupons has been problematic for CMS manufacturers during the rebate period respect to such drugs on behalf of
as well as some manufacturers. In this to any wholesaler, retailer, provider, individuals entitled to benefits under
rule, we propose to include coupons HMO, non-profit entity, or part A or enrolled under part B of such
redeemed by any entity other than the governmental entity within the United title. Section 1002(a) of the MMA
consumer in the calculation of AMP. We States except for those entities modified section 1927(c)(1)(C)(i)(I) of
believe that the redemption of coupons specifically excluded by statute. the Act by clarifying that inpatient
by the consumer directly to the Excluded from best price are prices prices charged to hospitals described in
manufacturer is not included in the charged on or after October 1, 1992, to section 340B(a)(4)(L) of the PHSA are
retail pharmacy class of trade. In this the IHS, the DVA, a State home exempt from best price.
proposed rule, we propose to exclude receiving funds under section 1741 of Section 6003 of the DRA amended
coupons redeemed by the consumer title 38, United States Code, the DoD, section 1927(c)(1)(C) of the Act by
directly to the manufacturer from the the PHS, or a covered entity described revising the definition of best price to
calculation of AMP. CMS invites in section 1927(a)(5)(B) of the Act clarify that the best price includes the
comments from the public on this (including inpatient prices charged to lowest price available to any entity for
proposed policy. hospitals described in section any such drug of a manufacturer that is
Future Clarifications of AMP: Based 340B(a)(4)(L) of the PHSA); any prices sold under an NDA approved under
on past comments from the GAO and charged under the FSS of the GSA; any section 505(c) of the FFDCA.
the OIG and recommendations of the prices used under an SPAP; any depot In accordance with our understanding
OIG in its May 2006 report on AMP, we prices (including Tricare) and single of congressional intent, in this proposed
believe that we need to have the ability award contract prices, as defined by the rule we propose to define best price
to clarify the definition of AMP in an Secretary, of any agency of the Federal with respect to a single source drug or
expedited manner in order to address Government; and prices to a Medicare innovator multiple source drug of a
the evolving marketplace for the sale of Part D PDP, an MA–PD, or a qualified manufacturer, including any drug sold
drugs. We plan to address future retiree prescription drug plan for under an NDA approved under section
505(c) of the FFDCA, as the lowest price source drug or innovator multiple PBMs which, in turn, are passed on to
available from the manufacturer during source drug of a manufacturer, the purchaser. In such situations where
the rebate period to any entity in the including an authorized generic, any discounts, chargebacks, or rebates are
United States in any pricing structure price concession associated with that used to adjust drug prices at the
(including capitated payments) in the sale should be netted out of the price wholesaler or retail level, such
same quarter for which the AMP is received by the manufacturer in adjustments are included in the best
computed. It continues to be our policy calculating best price and best price price calculation.
that best price reflects the lowest price should be adjusted by the manufacturer A GAO report, ‘‘Medicaid Drug Rebate
at which the manufacturer sells a if other arrangements subsequently Program—Inadequate Oversight Raises
covered outpatient drug to any adjust the prices actually realized. We Concerns about Rebates Paid to States,’’
purchaser, except those prices propose to consider any price (GAO–05–102), in February 2005,
specifically exempted by law. We adjustment which ultimately affects indicated that the Medicaid Drug Rebate
propose to define provider as a hospital; those prices which are actually realized Program does not clearly address certain
HMO, including an MCO or PBM; or by the manufacturer as ‘‘other financial concessions negotiated by
other entity that treats individuals for arrangements’’ and that such adjustment PBMs. The GAO recommended that we
illnesses or injuries or provides services should be included in the calculation of issue clear guidance on manufacturer
or items in the provisions of health care. best price, except to the extent that such price determination methods and the
As with the determination of AMP, adjustments qualify as bona fide service definitions of AMP and best price, and
the DRA does not establish a fees. update such guidance as additional
mechanism to clarify how best price is Consistent with our understanding of issues arise.
to be determined should new entities be congressional intent, we propose that The issue regarding PBMs was also
formed after this regulation takes effect. best price be calculated to include all addressed in the recently issued OIG
We believe that we need to have the sales, discounts, and other price report, ‘‘Determining Average
ability to clarify best price in an concessions provided by the Manufacturer Prices for Prescription
expedited manner in order to address manufacturer for covered outpatient Drugs under the Deficit Reduction Act
the evolving marketplace for the sale of drugs to any entity unless the of 2005,’’ (A–06–06–00063), in May
drugs. We plan to address future manufacturer can demonstrate that the 2006. In this report, the OIG
clarifications to best price through the sale, discount, or other price concession recommended that we clarify the
issuance of program releases and by is specifically excluded by statute or is treatment of PBM rebates.
posting the clarifications on the CMS provided to an entity not included in One of the most difficult issues with
Web site as needed. Even though the the rebate calculation. To the extent that PBM discounts, price concessions, or
DRA did not require CMS to clarify the an entity is not included in the best rebates is that manufacturers contend
requirements for best price, we price calculation, both sales and that they do not know what part of these
determined that it is reasonable to associated discounts or other price discounts, price concessions, or rebates
propose these provisions in this concessions provided to such an entity are kept by the PBM for the cost of their
proposed rule, consistent with long- should be excluded from the activities and profit, what part is passed
standing Medicaid Drug Rebate Program calculation. The specific terms we on to the health insurer or other insurer
policy, the MMA, and our propose to clarify and the proposed or other entity with which the PBM
understanding of congressional intent clarification follow. contracts, and what part that entity
with respect to best price as revised by The Medicaid drug rebate agreement passes on to pharmacies.
the DRA. defines best price, in part, as the lowest Despite the difficulties of including
We propose to incorporate the price at which the manufacturer sells certain PBM rebates, discounts or other
explicitly listed exclusions in section the covered outpatient drug to any price concessions in best price,
1927 of the Act, which are prices purchaser in the United States. We excluding these price concessions could
charged on or after October 1, 1992, to propose to codify this policy in this result in an artificial inflation of best
the IHS, the DVA, a State home proposed rule. price. We propose to include PBM
receiving funds under section 1741 of Customary Prompt Pay Discounts: rebates, discounts, or other price
title 38, United States Code, the DoD, The DRA revises the definition of AMP concessions for the purpose of
the PHS, or a covered entity described to exclude customary prompt pay determining best price.
in section 1927(a)(5)(B) of the Act discounts to wholesalers; however, we To the extent manufacturers are
(including inpatient prices charged to can find no evidence in the legislative offering PBMs rebates, discounts, or
hospitals described in section history of the DRA that Congress other price concessions, these lower
340B(a)(4)(L) of the PHSA); any prices intended to change the definition of best prices should be included in the best
charged under the FSS of the GSA; any price to exclude customary prompt pay price calculations. Therefore, where the
prices paid under an SPAP; any depot discounts. Therefore, we propose in this use of the PBM by manufacturers affects
prices (including Tricare) and single regulation to include customary prompt the price available from the
award contract prices, as defined by the pay discounts in best price. manufacturer, these lower prices should
Secretary, of any agency of the Federal PBM Price Concessions: We recognize be reflected in best price calculations.
Government; and payments made by a that a major factor contributing to the We acknowledge that there are many
Medicare Part D PDP, an MA–PD, or a determination of best price includes the PBM/manufacturer arrangements.
qualified retiree prescription drug plan treatment of PBMs. These entities have We believe that PBMs often obtain
for covered Part D drugs provided on assumed a significant role in drug rebates, discounts, or other price
behalf of Part D eligible individuals. We distribution since the enactment of the concessions which adjust prices, either
propose to codify this policy and Medicaid Drug Rebate Program in 1990. directly or indirectly. Unless the fees/
require that manufacturers exclude the As noted in Release 28 and reiterated discounts qualify as bona fide service
prices to these entities from best price. in Release 29, manufacturers have fees (which are excluded), the PBM
Because best price represents the lowest developed a myriad of arrangements rebates, discounts, or chargebacks
price available from the manufacturer to whereby specific discounts, should be included in best price. We
any entity with respect to a single chargebacks, or rebates are provided to propose to consider these rebates,
discounts, or chargebacks in best price by an MA–PD plan with respect to further clarify the price reductions and
calculations. CMS invites public covered part D drugs, or by a qualified other pricing arrangements included in
comment on the inclusion of certain retiree prescription drug plan (as the calculation of best price.
PBM price concessions in the defined in section 1860D–22(a)(2)) with
Authorized Generic Drugs—Section
determination of best price. Also, we respect to such drugs on behalf of Part
447.506
solicit public comment on how these D eligible individuals, shall
PBM price concessions should be (notwithstanding any other provision of Under current law, drug
reported to CMS to assure that law) not be taken into account for the manufacturers participating in the
appropriate price concessions are purposes of establishing the best price Medicaid Drug Rebate Program are
captured and included in the under section 1927(c)(1)(C).’’ Therefore, required to report the AMP for each
determination of best price. while we propose that the prices listed covered outpatient drug offered under
We propose to incorporate the above be included for the purpose of the Medicaid program and the best price
explicitly listed exclusions in section calculating AMP, we propose that prices for each single source or innovator
1927 of the Act and in the national negotiated by a PDP, an MA–PD, or a multiple source drug available to any
rebate agreement. Because best price qualified retiree prescription drug plan wholesaler, retailer, provider, HMO,
represents the prices available from the for covered Part D drugs provided on non-profit entity, or governmental entity
manufacturer for prescription drugs, behalf of Part D eligible individuals not with certain exceptions.
best price should be adjusted by the be taken into account for the purpose of For purposes of the Medicaid Drug
manufacturer if other arrangements establishing best price. Rebate Program, an authorized generic
subsequently adjust the prices actually Manufacturer Coupons: In this is any drug product marketed under the
realized. We propose to consider that proposed rule, we propose to clarify innovator or brand manufacturer’s
any price adjustment which ultimately how manufacturer coupons should be original NDA, but labeled with a
affects those prices which are actually treated for the purpose of establishing different NDC than the innovator or
realized by the manufacturer as ‘‘other best price. We believe that the brand product. According to our reading
arrangements’’ and that such an redemption of coupons by any entity of the statute, authorized generics are
adjustment should be included in the other than the consumer to the single source or innovator multiple
calculation of best price. The specific manufacturer ultimately affects the source drugs for the purpose of
terms we propose to clarify and the price paid by the entity (e.g., retail computing the drug rebate and are
proposed clarifications follow. pharmacy). In this rule, we propose to classified based on whether the drug is
Administrative and Service Fees: We include coupons redeemed by any being sold or marketed pursuant to an
propose that administrative fees which entity other than the consumer in the NDA. Responsibility for the rebate rests
include service fees and distribution calculation of best price. We believe that with the manufacturer selling or
fees, incentives, promotional fees, the redemption of coupons by the marketing the drug to the retail
chargebacks and all discounts or consumer directly to the manufacturer pharmacy class of trade.
rebates, other than rebates under the does not affect the price paid by any This rule would implement section
Medicaid Drug Rebate Program, should entity whose sales are included in best 6003 of the DRA. We propose to adopt
be included in the calculation of best price. In this proposed rule, we propose the term ‘‘authorized generic’’ and
price, if those sales are to an entity to exclude coupons redeemed by the define this term with respect to the
included in the calculation of best price. consumer directly to the manufacturer Medicaid Drug Rebate Program, as any
As previously discussed, the OIG has from the calculation of best price. CMS drug sold, licensed or marketed under a
noted in its report, ‘‘Determining invites comments from the public on new drug application approved by the
Average Manufacturer Prices for this proposed policy. FDA under section 505(c) of the FFDCA
Prescription Drugs under the Deficit Medicaid Rebates and Supplemental that is marketed, sold or distributed
Reduction Act of 2005,’’ (A–06–06– Rebates: Section 1927(c)(1)(C)(ii)(I) of directly or indirectly under a different
00063), May 2006 that confusion exists the Act and the national rebate product code, labeler code, trade name,
about the treatment of fees, such as agreement provide that any rebates paid trademark, or packaging (other than
service fees negotiated between a by manufacturers under section 1927 of repackaging the listed drug for use in
manufacturer and pharmaceutical the Act are to be excluded from the institutions) than the listed drug.
distributor for AMP and best price. We calculation of best price. Therefore, we Section 6003 of the DRA amended
believe that price adjustments which propose to exclude Medicaid rebates section 1927(b)(3)(A) of the Act to
ultimately affect those prices which are from best price. Likewise, we consider include drugs approved under section
actually available from the manufacturer rebates paid under CMS-authorized 505(c) of the FFDCA in the reporting
should be included in best price. We separate (supplemental) Medicaid drug requirements for the primary
propose that manufacturers should rebate agreements with States to meet manufacturer (NDA holder) for AMP
include all such fees except bona fide this requirement and propose that these and best price. We propose to interpret
service fees provided at fair market rebates be excluded from best price. In the language of section 6003 of the DRA
value in the best price calculation. accordance with section 1927 of the Act to include in the best price and AMP
Treatment of Medicare Part D Prices: pertaining to the determination of best calculations of the branded drugs, the
In this proposed rule, we propose to price and our understanding of authorized generic drugs that have been
clarify the treatment of prices which are congressional intent, we propose a new marketed by another manufacturer or
negotiated by a Medicare Part D PDP, an § 447.505. In § 447.505(a), we would subsidiary of the brand manufacturer (or
MA–PD, or a qualified retiree provide a general definition of the term NDA holder). We believe that to limit
prescription drug plan for covered Part best price. In § 447.505(b), we propose the applicability of this regulation to the
D drugs provided on behalf of Part D to define provider. In § 447.505(c), we sellers of authorized generic drugs
eligible individuals. We propose that would specify the sales and prices would allow manufacturers to
these prices are exempt from the best which must be included in best price. circumvent the intent of the provision
price. Section 1860D–2(d)(1)(C) of the In § 447.505(d), we would specify which by licensing rather than selling the
Act specifically states that ‘‘prices sales and prices must be excluded from rights to such drugs. This is why we
negotiated by a prescription drug plan, best price. In § 447.505(e), we would propose a broad definition of authorized
generic drugs rather than a more narrow enacted in the MMA. It is also similar section 318 of the PHSA (relating to
definition of such drugs. We propose to to the definition of nominal price in the treatment of sexually transmitted
require the NDA holder to include sales VHCA. We propose to continue to diseases) or section 317(j)(2) of the
of the authorized generic product define nominal prices as prices at less PHSA (relating to treatment of
marketed by the secondary than 10 percent of the AMP in that same tuberculosis) through a State or unit of
manufacturer or the brand quarter; however, in accordance with local government, but only if the entity
manufacturer’s subsidiary in its the DRA, we further propose to specify is certified by the Secretary pursuant to
calculation of AMP and best price. We that the nominal price exception applies section 340B(a)(7) of the PHSA; a
welcome comments on this issue. only when certain entities are the subsection (d) hospital (as defined in
The secondary manufacturer or purchasers. section 1886(d)(1)(B) of the Act that (i)
subsidiary of the brand manufacturer Section 6001(d)(2) of the DRA is owned or operated by a unit of State
would continue to pay the single source modified section 1927(c)(1) of the Act to or local government, is a public or
or innovator multiple source rebate for limit the nominal price exclusion from private non-profit corporation which is
the authorized generic drug products best price to exclude only sales to formally granted governmental powers
based on utilization under its own NDC certain entities and safety net providers. by a unit of State or local government,
number, as required under current law. Specifically, it excluded from best price or is a private non-profit hospital which
We welcome comments on these issues. those nominal price sales to 340B has a contract with a State or local
In § 447.506(a), we would define the covered entities as described in section government to provide health care
term authorized generic drug for the 340B(a)(4) of the PHSA, ICFs/MR, and services to low income individuals who
purposes of the Medicaid Drug Rebate State-owned or operated nursing are not entitled to benefits under title
Program. facilities. In addition, the Secretary has XVIII of the Act or eligible for assistance
In § 447.506(b), we would require the authority to identify as safety net under the State plan under this title, (ii)
sales of authorized generic drugs that providers other facilities or entities to for the most recent cost reporting period
have been sold or licensed to another which sales at a nominal price will be that ended before the calendar quarter
manufacturer to be included by the excluded from best price if he deems involved, had a disproportionate share
primary manufacturer as part of its them eligible safety net providers based adjustment percentage (as determined
calculation of AMP for the single source on four factors: the type of facility or under section 1886(d)(5)(F) of the Act)
or innovator multiple source drug entity, the services provided by the greater than 11.75 percent or was
(including all such drugs that are sold facility or entity, the patient population described in section 1886(d)(5)(F)(i)(II)
under an NDA approved under section served by the facility or entity and the of the Act, and (iii) does not obtain
505(c) of the FFDCA). number of other facilities or entities
In § 447.506(c), we would require that covered outpatient drugs through a
eligible to purchase at nominal prices in group purchasing organization or other
sales of authorized generic drugs by the the same service area.
secondary manufacturer that buys or group purchasing arrangement. We do
Section 340B(a)(4) of the PHSA
licenses the right to sell the drugs be not believe it necessary to elaborate
defines entities covered under that
included by the primary manufacturer further on these entities. We propose to
provision. Covered entities include: A
in sales used to determine the best price define ICF/MR, for purposes of the
federally qualified health center as
for the single source or innovator nominal price exclusion from best price,
defined in section 1905(l)(2)(B) of the
multiple source drug approved under to mean an institution for the mentally
Act; an entity receiving a grant under
section 505(c) of the FFDCA during the retarded or persons with related
section 340A of the PHSA; a family
rebate period to any manufacturer, conditions that provides services as set
planning project receiving a grant or
wholesaler, retailer, provider, HMO, forth in 42 CFR 440.150. Additionally,
contract under Section 1001 of the
non-profit entity, or governmental entity PHSA (42 U.S.C. § 300); an entity we propose to define nursing facility as
within the United States. The primary receiving a grant under subpart II of part a facility that provides those services set
manufacturer must include in its C of title XXVI of the PHSA (relating to forth in 42 CFR 440.155.
calculation of best price all sales of the categorical grants for outpatient early The statute allows the Secretary to
authorized generic drug which have intervention services for HIV disease); a determine other facilities or entities to
been sold or marketed by a secondary State-operated AIDS drug purchasing be safety net providers to whom sales of
manufacturer or by a subsidiary of the assistance program receiving financial drugs at a nominal price would be
brand manufacturer. assistance under title XXVI of the excluded from best price. The
PHSA; a black lung clinic receiving Secretary’s determination would be
Exclusion From Best Price of Certain based on the four factors noted above
funds under section 427(a) of the Black
Sales at a Nominal Price—Section established by the DRA. We considered
Lung Benefits Act; a comprehensive
447.508 hemophilia diagnostic treatment center using this authority to expand this
Pursuant to the terms of the national receiving a grant under section 501(a)(2) exclusion to other safety-net providers.
rebate agreement, manufacturers of the Act; a Native Hawaiian Health We considered proposing that we use
excluded from their best price Center receiving funds under the Native the broader definition of safety net
calculations outpatient drug prices Hawaiian Health Care Act of 1988; an provider used by the Institute of
below 10 percent of the AMP. The urban Indian organization receiving Medicine (IOM). In its report,
rebate agreement did not specify funds under the title V of the Indian ‘‘America’s Health Care Safety Net,
whether this nominal price exception Health Care Improvement Act, any Intact but Endangered,’’ the IOM defines
applied to all purchasers or to a subset entity receiving assistance under title safety-net providers as ‘‘providers that
of purchasers. Medicaid has used this XXVI of the PHSA (other than a State or by mandate or mission organize and
definition since the start of the unit of local government or an entity deliver a significant level of healthcare
Medicaid Drug Rebate Program and receiving a grant under subpart II of part and other health-related services to the
Medicare Part B also adopted it in its C of title XXVI of the PHSA), but only uninsured, Medicaid and other
April 6, 2004 interim final rule with if the entity is certified by the Secretary vulnerable patients.’’ We also
comment period (69 FR 17935) that pursuant to section 340B(a)(7) of the considered proposing how the Secretary
implemented the ASP provisions PHSA; an entity receiving funds under might use the four factors to allow the
nominal price exclusion to best price to period replacing the three-year single source, innovator multiple
apply to other safety net providers. recordkeeping requirement with a ten- source, or noninnovator multiple
However, we believe that the entities year requirement on a temporary basis source) and pricing information for their
specified in the statute are sufficiently (69 FR 508 (Jan. 6, 2004)). We also covered outpatient drugs. In accordance
inclusive and capture the appropriate required that manufacturers retain with the statute, the rule would require
safety net providers. Therefore, we have records beyond the ten-year period if manufacturers to report AMP and best
chosen not to propose to expand the the records were subject to certain price to CMS not later than thirty days
entities subject to this provision at this audits or government investigations. On after the end of the rebate period.
time. Additionally, we believe that November 26, 2004, we published final Section 6001(b)(1) of the DRA
adding other entities or facilities would regulations (69 FR 68815) that require amended section 1927(b)(3)(A)(i) of the
have an undesirable effect on the best that a manufacturer retain pricing data Act by adding ‘‘month of a’’ before
price by expanding the entities for for ten years from the date the ‘‘rebate period.’’ Section 6003(a) of the
which manufacturers can receive the manufacturer reports that period’s data DRA restructured section
best price exclusion beyond those to CMS. We propose to move the 1927(b)(3)(A)(i) of the Act. The statute,
specifically mandated by the DRA and recordkeeping requirements at as amended by these provisions, can be
lowering manufacturer rebates to the § 447.534(h) to § 447.510(f) and revise read in different ways. One
Medicaid Program. Because the statute them by adding the requirement that interpretation is that the revisions made
gives the Secretary discretion not to manufacturers must also retain records by section 6003(a) of the DRA supersede
expand the list of entities, we do not used in calculating the customary the revisions made by section 6001(b)(1)
propose to do so at this time in this rule. prompt pay discounts and nominal of the DRA, effectively eliminating the
CMS has concerns that despite the prices reported to CMS. requirement that manufacturers report
fact that the DRA limits the nominal Existing regulations at § 447.534(i) data to CMS on a monthly basis.
price exclusion to specific entities, the require manufacturers to report However, we do not believe that this
nominal price exclusion will continue revisions to AMP and best price for a reading is the better reading of the
to be used as a marketing tool. period not to exceed twelve quarters statute or consistent with congressional
Historically, patients frequently remain from the quarter in which the data were intent. It is unreasonable to presume
on the same drug regimen following due. We propose to move this provision that Congress would simultaneously
discharge from a hospital. Physicians to § 447.510(b) and revise it to require establish and render meaningless a new
may be hesitant to switch a patient to manufacturers to also report revisions to provision of law and we do not propose
a different brand and risk destabilizing customary prompt pay discounts and to adopt this interpretation. Another
the patient once discharged from the nominal prices for the same period. interpretation is that the revisions made
hospital. We believe that using nominal In order to reflect the changes to AMP by section 6001(b)(1) of the DRA, when
price for marketing is not within the as set forth in the DRA, we propose read with the amendments made by
spirit and letter of the law. We are allowing manufacturers to recalculate section 6003 of the DRA, create a new
considering crafting further guidance to base date AMP in accordance with the requirement that AMP, best price, and
address this issue. CMS invites definition of AMP in § 447.504(e) of this customary prompt pay discounts be
comments from the public to assist us subpart. Base date AMP is used in the reported on a monthly basis. However,
in ensuring that all aspects of this issue calculation of the additional rebate there is no compelling evidence in the
are fully considered. described in section 1927(c)(2) of the legislative history which indicates that
In accordance with the provisions of Act. This additional rebate is defined as Congress intended to change the rebate
the DRA, the restriction on nominal the difference between the quarterly period from quarterly to monthly. Best
price sales shall not apply to sales by a AMP reported to CMS and the base date price is reported to CMS quarterly for
manufacturer of covered outpatient AMP trended forward using the CPI–-U. purposes of our calculation of the unit
drugs that are sold under a DVA master We propose this amendment so that the rebate amount for single source and
agreement under section 8126 of title additional rebate would not increase innovator multiple source drugs. While
38, United States Code. due to changes in the definition of AMP. Congress clearly intended that AMPs be
We propose a new § 447.508 in which We propose giving manufacturers an reported and disclosed to States on a
we would specify those entities to opportunity to submit a revised base monthly basis, it did not establish any
which a manufacturer of covered date AMP with their data submission for similar monthly use for best price or
outpatient drugs may sell at nominal the first full calendar quarter following customary prompt pay discounts. For
price and provide for the exclusion of the publication of the final rule. We these reasons, we propose to interpret
such sales from best price. propose to allow manufacturers the section 6001(b) of the DRA to require
option to decide whether they will that manufacturers report only AMP to
Requirements for Manufacturers— recalculate and submit to CMS a base CMS on a monthly basis beginning
Section 447.510 date AMP based on the new definition January 1, 2007. To implement this
On August 29, 2003, CMS finalized of AMP or submit their existing base provision, we would require in
two of the provisions in the 1995 NPRM date AMP. We are giving manufacturers § 447.510(d) that manufacturers must
through a final rule with comment this option because we are aware that submit monthly AMP to CMS not later
period (68 FR 51912). We required some manufacturers may not have the than 30 days after each month. We
manufacturers to retain records for data data needed to recalculate base date would also require manufacturers to
used to calculate AMP and best price for AMP or may find the administrative report quarterly AMP, best price, and
three years from when AMP and best burden to be more costly than the customary prompt pay discounts on a
price are reported to CMS. We also savings gained. quarterly basis.

required manufacturers to report Under section 1927(b)(3)(A) of the Act We propose that the monthly AMP
revisions to AMP and best price for a and the terms of the national rebate will be calculated the same as the
period not to exceed twelve quarters agreement, manufacturers that sign the quarterly AMP, with the following
from the quarter in which the data are national rebate agreement must supply exceptions. The time frame represented
due. On January 6, 2004, we published CMS with a list of all product data (e.g., by the monthly AMP would be one
an interim final rule with comment date entered market, drug category of calendar month instead of a calendar
quarter and once reported, would not be be reported as an aggregate dollar regulations at §§ 447.331, 447.332, and
subject to revision later than 30 days amount which includes all nominal 447.334 as new regulations at
after each month. Because we recognize price sales to the entities listed in §§ 447.512, 447.514, and 447.516,
that industry pricing practices § 447.508(a) of this subpart for the respectively.
sometimes result in rebates or other rebate period. Existing regulations at
price concessions being given by Section 1927(b)(3)(C) of the Act § 447.332(a)(1)(i) state that an upper
manufacturers to purchasers at the end describes penalties for manufacturers limit for a multiple source drug may be
of a calendar quarter, if the monthly that provide false information or fail to established if all of the formulations of
AMP were calculated simply using sales provide timely information to CMS. In the drug approved by the FDA have
in that month, these pricing practices light of these requirements, we propose been evaluated as therapeutically
might result in fluctuations between the to require that manufacturers certify the equivalent in the current edition of the
AMP for the first two months and the pricing reports they submit to CMS in FDA’s publication, ‘‘Approved Drug
AMP for the third month in a calendar accordance with § 447.510. We propose Products with Therapeutic Equivalence
quarter. In order to maximize the to adopt the certification requirements Evaluations.’’
usefulness of the monthly AMP and established by the Medicare Part B Section 1927(e)(4) of the Act, as
minimize volatility in the prices, we Program for ASP in the interim final amended by OBRA 90, expanded the
propose allowing manufacturers to rely rule with comment period published on criteria for multiple source drugs subject
on estimates regarding the impact of April 6, 2004. Each manufacturer’s to FUL reimbursement. Specifically, the
their end-of-quarter rebates or other pricing reports would be certified by the statute required CMS to establish an
price concessions and allocate these manufacturer’s Chief Executive Officer upper payment limit for each multiple
rebates or other price concessions in the (CEO), Chief Financial Officer (CFO), or source drug when there are at least three
monthly AMPs reported to CMS an individual who has delegated therapeutically and pharmaceutically
throughout the quarter. We considered authority to sign for, and who reports equivalent multiple source drugs,
applying this same methodology to directly to, the manufacturer’s CEO or regardless of whether all additional
other cumulative rebates or other price CFO. formulations are rated as such. Effective
concessions over longer periods of time, We propose that all product and January 1, 2007, the DRA changed the
but are not certain that such rebates or pricing data, whether submitted on a requirement such that a FUL must be
other prices concessions could be quarterly or monthly basis, be submitted established for each multiple source
allocated with respect to monthly AMP to CMS in an electronic format. When drug for which the FDA has rated two
calculations. We invite comments on the Medicaid Drug Rebate Program was or more products as therapeutically
allowing the use of 12-month rolling first implemented in 1991, electronic equivalent.
average estimates of all lagged discounts data transfer was one of three data Currently, if all formulations of a
for both the monthly and quarterly submission options as the use of such multiple source drug are identified as A-
AMP. We also considered allowing electronic media was not yet as rated in the FDA’s publication,
manufacturers to calculate the monthly commonplace as it is today. Due to the ‘‘Approved Drug Products with
AMP based on updates of the most new monthly data reporting
recent three-month period (i.e., a rolling Therapeutic Equivalence Evaluations,’’
requirements and additional quarterly at least two formulations must be listed
three-month AMP). While this data reporting requirements, we propose
methodology may minimize volatility in in that publication for CMS to establish
to require manufacturers to use one a FUL for that drug. If all formulations
the data, we believe it would be fairly uniform data transmission format to
complex for manufacturers to of a multiple source drug are not A-
transmit and collect these data. CMS rated, there must be at least three A-
operationalize. We encourage comments will issue operational instructions to
on the appropriate methodology for rated versions of the drug listed in
provide additional guidance regarding ‘‘Approved Drug Products with
calculating monthly AMP. the new electronic data submission
Section 6001(b)(2)(C) of the DRA Therapeutic Equivalence Evaluations’’
requirements. for CMS to establish a FUL for the drug.
amended the confidentiality
requirements at section 1927(b)(3)(D) of Aggregate Upper Limits of Payment— If a product meets the FDA criteria
the Act by adding an exception for AMP Section 447.512 described above, we confirm that at
disclosure through a Web site accessible We propose that the existing least three suppliers (i.e.,
to the public. The statute does not § 447.331 be revised and redesignated as manufacturers, wholesalers, re-
specify that this exception only applies a new § 447.512. We propose to revise packagers, re-labelers or any other entity
to monthly AMP; therefore, we also subsection (a) to clarify that the upper from which a drug can be purchased)
propose to make the quarterly AMP limit for multiple source drugs applies list the drug in published compendia of
publicly available. We note that the in the aggregate. We also propose to cost information for drugs available for
quarterly AMP would not necessarily be update several cross-references to sale nationally (e.g., Red Book, First
identical to the monthly AMP due to the provisions in subpart I. DataBank, or Medi-Span). Then, using
potential differences in AMP from one these pricing compendia, we select the
timeframe to the next. Upper Limits for Multiple Source lowest price (e.g., the average wholesale
Section 6001(d)(1) of the DRA Drugs—Section 447.514 price, wholesale acquisition cost, or
modified section 1927(b)(3)(A)(iii) of the We propose that the existing direct price) from among the A-rated
Act by adding a requirement that § 447.332 be revised in a new § 447.514. formulations of a particular drug and
manufacturers report nominal prices for apply the formula described in existing
calendar quarters beginning on or after A. Upper Limits for Multiple Source § 447.332 to determine the FUL for that
January 1, 2007 to the Secretary. To Drugs drug. FUL lists and changes to those
implement this provision, we propose to Existing regulations at 42 CFR lists based on the methodology set forth
require that manufacturers report 447.331, 447.332 and 447.334 address in the statute and regulations are issued
nominal price exception data to CMS on upper limits for payment of drugs periodically through Medicaid program
a quarterly basis. We further propose covered under the Medicaid program. issuances and are posted on the CMS
that nominal price exception data shall We propose to redesignate existing Web site.
By the term, ‘‘therapeutically or capsules (or, if the drug is not However, the legislation did not
equivalent,’’ we mean drugs that are commonly available in quantities of change the level at which manufacturers
identified as A-rated in the current 100, the package size commonly listed) are to report AMP, and we find no
edition of the FDA’s publication, or, in the case of liquids, the commonly evidence in the legislative history that
‘‘Approved Drug Products with listed size. the Congress intended that AMP should
Therapeutic Equivalence Evaluations’’ Section 6001(a)(2) of the DRA added be restructured to collect it by 11-digit
(including supplements or successor section 1927(e)(5) to the Act that NDCs. We are proposing to use the
publications). We propose that the FUL changed the formula used to establish currently reported 9-digit AMP for
will be established, as per section the FUL for multiple source drugs. calculating the FUL. Changing the
1927(e)(4) of the Act, only using an ‘‘A’’ Effective January 1, 2007, the upper current method of calculating the AMP
rated drug. However, we propose to limit for multiple source drugs shall be would require manufacturers to make
continue our current practice of established at 250 percent of the AMP significant changes to their reporting
applying the FUL to all drug (as computed without regard to systems and have an unknown effect on
formulations, including those drug customary prompt pay discounts the calculation of rebates in the existing
versions not proven to be extended to wholesalers) for the least Medicaid Drug Rebate Program. In State
therapeutically equivalent, (e.g., B-rated costly therapeutic equivalent. The Medicaid payment systems that
drugs). We believe it is appropriate to currently reported AMP is based on the consider a number of different factors in
apply the FUL to B-rated drugs in order nine-digit NDC and is specific only to deriving payment rates, we also believe
not to encourage pharmacies to the product code, combining all package it would offer minimal advantages.
substitute B-rated drugs to avoid the sizes of the drug into the same Furthermore, we expect that because the
FUL in the case where B-rated drugs computation of AMP. We propose to AMP is marked up 250 percent, the
would be excluded from the FUL. continue to use the AMP calculated at resultant reimbursement should be
Current regulation does not prohibit or the nine-digit NDC for the FUL sufficient to reimburse the pharmacy for
exclude B-rated drugs from the FUL calculation. In accordance with the DRA the drug regardless of the package size
reimbursement. amendments, we will no longer take the the pharmacy purchased and that to the
We propose revising the methodology individual 11-digit NDC, and thereby extent it does have an impact, it would
we use to establish FULs for multiple the most commonly used package size encourage pharmacies to buy the most
source drugs based on the modifications into consideration when computing the economical package size.
made by the DRA. Specifically, sections FUL because the currently reported We specifically ask for comments on
6001(a)(3) and (4) of the DRA changed AMP does not differentiate among the alternative approach of using the 11-
the definition of multiple source drug package sizes. digit NDC to calculate the AMP. We will
established in section 1927(k)(7)(A)(i) of We considered using the 11-digit NDC consider comments on the merits of
the Act to mean, with respect to a rebate to calculate the AMP, which would using both approaches in calculating the
period, a covered outpatient drug for require manufacturers to report the AMP for the FUL.
which there is at least one other drug AMP at the 11-digit NDC for each In computing the FUL, we propose
product which is rated as package size and that doing so would that the monthly AMP submitted by the
therapeutically equivalent (under the offer other advantages to the program for manufacturer will be used. Using the
FDA’s most recent publication of FULs and other purposes. An AMP at monthly AMP will provide for the
‘‘Approved Drug Products with the 11-digit NDC would allow us to timeliest pricing data and allow
Therapeutic Equivalence Evaluations’’). compute a FUL based on the most revisions to the FUL list on a monthly
Also, section 6001(a)(1) of the DRA common package size as specified in basis. It will also permit us to update
changed the requirement for a FUL to be current regulations. We do not believe the FULs on a timely basis in
established for each multiple source computing an AMP at the 11-digit NDC accordance with the provisions of
drug for which the FDA has rated three would be significantly more difficult section 1927(f)(1)(B) of the Act, wherein
or more products therapeutically and than computing the AMP at the nine- the Secretary, after receiving
pharmaceutically equivalent to a digit NDC as the data from each of the notification that a therapeutically
requirement for a FUL when the FDA 11-digit NDCs is combined into the equivalent drug product is generally
has established such a rating for two or current AMP. The AMP at the 11-digit available, shall determine within 7 days
more products. Therefore, we propose NDC would also align with State if that drug product should have a FUL.
in § 447.514(a)(1)(ii) that a FUL will be Medicaid drug payments that are based Section 6001(c)(1) of the DRA
set when at least two suppliers (e.g., on the package size. It would also allow redefines AMP to exclude customary
manufacturers, wholesalers, re- us to more closely examine prompt pay discounts extended to
packagers, or re-labelers) list the drug in manufacturer price calculations and wholesalers. Due to this change in the
a nationally available pricing allow the States and the public to know computation, and the requirement that
compendia (e.g., Red Book, First the AMP for the drug for each package monthly AMP first be reported as of
DataBank, or Medi-Span). size. It would also allow 340B covered January 1, 2007, we propose that a FUL
Existing regulations at § 447.332(b) entities, which are entitled to buy drugs update of drugs, using the new
specify that the agency’s payments for at a discount that is in part based on methodology first be published when
multiple source drugs identified and calculations related to AMP, to know the revised AMPs are available and
listed must not exceed, in the aggregate, what the pricing is for each package processed.
payment levels determined by applying, size, as 340B ceiling prices are We propose to adopt additional
for each drug entity, a reasonable established per package size. criteria to ensure that the FUL will be
dispensing fee established by the Calculating the AMP at the 11-digit NDC set at an adequate price to ensure that
agency, plus an amount that is equal to level permits greater transparency, and a drug is available for sale nationally as
150 percent of the published price for may increase accuracy and reduce errors presently provided in our regulations.
the least costly therapeutic equivalent for the 340B covered entities where When establishing a FUL, we propose to
(using all available national pricing prices are established for a package-size disregard the AMP of an NDC which has
compendia) that can be purchased by product rather than a per unit cost using been terminated. The AMP of a
pharmacies in quantities of 100 tablets the product’s weighted average AMP. terminated NDC will not be used to set
the FUL beginning with the first day of use of AMP in calculating the FUL will requirements.) If States collect HCPCS
the month after the actual termination ensure that a drug is available nationally codes for single source drugs, they can
date reported by the manufacturer. This at the FUL price. Please submit data crosswalk these codes to NDC numbers
refinement may not capture all outlier supporting your proposal when because most HCPCS codes for single
AMPs that would offset the availability available. source drugs include only one NDC in
of drugs at the FUL price. It is possible order to collect rebates.
Upper Limits for Drugs Furnished as Section 1927(a)(7)(C) of the Act
that a product that is not discontinued
Part of Services—Section 447.516 requires that, beginning January 1, 2007,
may be available on a limited basis at
a very low price. As a further safeguard We propose that the existing States must provide for the submission
to ensure that a drug is nationally § 447.334 be redesignated as a new of claims data with respect to physician-
available at the FUL price and that a § 447.516. administered drugs (both single source
very low AMP is not used by us to set State Plan Requirements, Findings and and multiple source drugs) using NDC
a FUL that is lower than the AMP for Assurances—Section 447.518 numbers, unless the Secretary specifies
other therapeutically and that an alternative coding system can be
pharmaceutically equivalent multiple We propose that the existing used. The Secretary does not plan to
source drugs, we propose to set the FUL § 447.333 be redesignated as a new specify an alternative coding system
based on the lowest AMP that is not less § 447.518. because we believe that NDC numbers
than 30 percent of the next highest AMP FFP: Conditions Relating to Physician- are well established in the medical
for that drug. That is to say, that the Administered Drugs—Section 447.520 community and provide States the most
AMP of the lowest priced useful information to collect rebates.
Prior to the DRA, many States did not Section 1927(a)(7)(B) of the Act
therapeutically equivalent drug will be
collect rebates on physician- requires the Secretary, by January 1,
used to establish the FUL, except in
administered drugs when they were not 2007, to publish a list of the 20 multiple
cases where this AMP is more than 70
identified by NDC number because the source physician-administered drugs
percent below the second lowest AMP.
NDC number is necessary for States to with the highest dollar volume
In those cases, the second lowest AMP
bill manufacturers for rebates. In its dispensed under the Medicaid program.
will be used in the FUL calculation. We
report, ‘‘Medicaid Rebates for Physician We propose that the list will be
propose to use this percentage
Administered Drugs’’ (April 2004, OEI– developed by the Secretary using data
calculation as a benchmark to prevent
an outlier price from determining the 03–02–00660), the OIG reported that, by from the Medicaid Statistical
FUL, but invite comments as to whether 2003, 24 States either required providers Information System and published on
this percentage is an appropriate to bill using NDC numbers or identified the CMS Web site.
measure to use. We did consider other NDC numbers using a Healthcare Section 1927(a)(7)(B)(ii) of the Act
options, such as 60 percent below the Common Procedure Coding System (when read with other DRA
next highest AMP so that at least drugs (HCPCS)-to-NDC crosswalk for amendments) requires that, effective
of two different manufacturers would be physician-administered drugs in order January 1, 2008, in order for FFP to be
in the FULs group, but we were to collect rebates. Four of the 24 States available, States must provide for the
concerned that this percentage was were able to collect rebates for all submission of claims for physician-
insufficient to encourage competition physician-administered drugs, both administered multiple source drugs
where the cost of a particular drug was single source and multiple source drugs using NDC numbers for those drugs
dropping rapidly. We also considered a (one State only collected these rebates with the highest dollar volume listed by
test of a drug priced 90 percent below from targeted providers). Section 6002 the Secretary.
the next lowest priced drug, in line with of the DRA added sections 1927(a)(7) We propose, for the purpose of this
how we look on nominal prices, as an and 1903(i)(10)(C) to the Act to require section, that the term ‘‘physician-
indicator that the manufacturer was that States collect rebates on certain administered drugs’’ be defined as
offering this drug on a not-for-profit physician-administered drugs in order covered outpatient drugs under section
basis. However, we note that nominal for FFP to be available for these drugs. 1927(k)(2) of the Act (many are also
price relates to best price for some sales Section 1927(a)(7)(A) of the Act covered by Medicare Part B) that are
and it is unlikely a manufacturer would requires that, effective January 1, 2006, typically furnished incident to a
sell all of its drugs at this price. We in order for FFP to be available, States physician’s service. These drugs are
welcome suggestions about other means must require the submission of usually injectable or intravenous drugs
to address outliers and whether outliers utilization data for single source administered by a medical professional
should be addressed at all. physician-administered drugs using in a physician’s office or other
We are proposing an exception to the HCPCS codes or NDC numbers. (HCPCS outpatient clinical setting. Examples
30 percent carve-out policy when the codes are numeric and alpha-numeric include injectables: Lupron acetate for
FUL group only includes the innovator codes assigned by CMS to every medical depot suspension (primarily used to
single source drug and the first new or surgical supply, service, orthotic, treat prostate cancer), epoetin alpha
generic in the market, including an prosthetic and generic or brand name (injectable drug primarily used to treat
authorized generic. In this event, we drug for the purpose of reporting cancer), anti-emetic drugs (injectable
would not apply the 30-percent rule as healthcare transactions for claims drug primarily used to treat nausea
we believe the DRA intends that a FUL billing. Physician-administered drugs resulting from chemotherapy),
be set when new generic drugs become are assigned alpha-numeric HCPCS intravenous drugs primarily used to
generally available so as to encourage codes, and are commonly referred to as treat cancer (paclitaxel and docetaxel),
greater utilization of a generic drug J-codes. However, physician- infliximab primarily used to treat
when the price is set less than its brand administered drugs are also coded using rheumatoid arthritis, and rituximab
name counterpart. other letters of the alphabet. For this primarily used to treat non-Hodgkin’s
We invite comments from the public reason, we will refer to the coding lymphoma. We believe that some oral
on all issues set forth in this subpart. system, HCPCS, as opposed to one set self-administered drugs (administered
We invite suggestions on how best to of alpha-numeric codes in our in an outpatient clinical setting), such as
accomplish the goal of ensuring that the discussion of section 6002 oral anti-cancer drugs, oral anti-emetic
drugs should also be included in the collection should be approved by the While this requirement is subject to
designation of physician-administered OMB, section 3506(c)(2)(A) of the PRA the PRA, the retention of quarterly data
drugs consistent with Part B policy and requires that we solicit comment on the it is not a new requirement. While this
sections 1861(s)(2)(Q) and (T) of the Act. following issues: requirement will now also apply to
Section 1927(a)(7)(D) of the Act • The need for the information monthly AMP data, we believe a similar
allows the Secretary to grant States collection and its usefulness in carrying set of data is now retained to support
extensions if they need additional time out the proper functions of our agency. the quarterly retention requirement.
to implement or modify reporting • The accuracy of our estimate of the Therefore, we believe this regulation
systems to comply with this section. We information collection burden. imposes no additional burden on the
are not proposing any criteria for • The quality, utility, and clarity of drug manufacturer.
reviewing these extension requests as the information to be collected.
we expect that most, if not all States • Recommendations to minimize the FFP: Conditions Relating to Physician-
will be able to meet the statutory information collection burden on the Administered Drugs. (§ 447.520)
deadlines for collection of NDC affected public, including automated Section 447.520 requires providers,
numbers on claims. Most States are collection techniques. effective January 1, 2007, to submit
already collecting rebates for single We are soliciting public comment on claims to the State for physician-
source drugs that are provided in a each of these issues for the following administered single source drugs and
physician’s office. For multiple source sections of this document that contain the 20 multiple source drugs identified
drugs, the States have nearly two years information collection requirements: by the Secretary using NDC numbers.
following enactment of the DRA before Assuming all States impose this
Requirements for Manufacturers
FFP would be denied for the 20 requirement, the burden associated with
(§ 447.510)
multiple source drugs specified by the this requirement is the time and effort
Secretary as having the highest dollar Proposed § 447.510 states that a it would take for a physician’s office,
volume. manufacturer must report, hospital outpatient department or other
We expect that States will require electronically, product and pricing entity (e.g., non profit facilities) to
physicians to submit all claims using information to CMS not later than 30 include the NDC on claims submitted to
NDC numbers, as using multiple billing days after the end of the rebate period. the State. We estimate this requirement
systems would be burdensome for In addition, customary prompt pay would affect an excess of 20,000
physicians and States. This will also discounts and nominal prices must be physicians, hospitals with outpatient
advantage States because rebates will be reported quarterly. Detailed information departments and other entities that
collectible on all physician- pertaining to the manufacturer’s would submit approximately 3,910,000
administered drugs. reporting requirements is located under claims annually. We believe this would
For States not currently billing §§ 447.510(a), (b), (c), (d), and (e). take approximately 15 seconds per
manufacturers for rebates on single The burden associated with these new claim. We estimated the cost based on
source drugs, we believe that the requirements is the time and effort it the average annual wage and benefits
Medicare Part B crosswalk may be would take for a drug manufacturer to paid for office and administrative
helpful to crosswalk HCPCS codes to gather product and pricing information support services in 2006 of $21.14 per
NDC numbers. This crosswalk may be and submit it to CMS in an electronic hour (http://www.bls.gov/news.release/
found on the CMS Web site at http:// format. We estimate that these pdf/ecec.pdf). The per claim cost would
new.cms.hhs.gov/ requirements would affect the be under 9 cents.
McrPartBDrugAvgSalesPrice/ approximately 550 drug manufacturers Section 447.520(c) allows States
02_aspfiles.asp. that currently participate in the requiring additional time to comply
To implement the provisions set forth Medicaid Drug Rebate Program. Our with the requirements of this section to
in section 6002, we propose a new current reporting and recordkeeping apply for an extension. The burden
§ 447.520. In § 447.520(a), we would hour burden for each manufacturer in associated with this requirement is the
require States to require that claims for the Medicaid Drug Rebate Program is 71 time and effort it would take for each
physician-administered drugs be hours per quarter or 284 hours annually. State to apply for a one-time extension.
submitted using codes that identify the We believe the new reporting We estimate that it would take five
drugs sufficiently to bill a manufacturer requirements will require less than half hours for each State to apply for the
for rebates in order for the State to of this time. Specifically, we believe it extension; however, we believe that no
receive FFP. In § 447.520(b), we would would take each manufacturer 31 hours State will apply. Therefore, we believe
require States to require providers to per quarter or 124 hours annually to this requirement to be exempt as
submit claims using NDC numbers. In report additional new information to specified at 5 CFR 1320.3(c)(4).
§ 447.520(c), we would allow States that CMS. The total estimated burden on all We have submitted a copy of this
require additional time to comply with drug manufacturers associated with the proposed rule to the OMB for its review
the requirements of this section to apply new requirements under § 447.510 is of the information collection
to the Secretary for an extension. 68,200 annual hours. requirements described above. These
Section 447.510(f) requires a requirements are not effective until they
III. Collection of Information manufacturer to retain records for ten have been approved by the OMB.
Requirements years from the date the manufacturer If you comment on these information
Under the Paperwork Reduction Act reports data to CMS for that rebate collection and recordkeeping
of 1995 (PRA), we are required to period. The ten-year time frame applies requirements, please mail copies
provide 60-day notice in the Federal to a manufacturer’s quarterly and directly to the following: Centers for
Register and solicit public comment monthly submissions of pricing data, as Medicare & Medicaid Services, Office of
before a collection of information well as any revised quarterly pricing Strategic Operations and Regulatory
requirement is submitted to the Office of data subsequently submitted to CMS. As Affairs, Division of Regulations
Management and Budget (OMB) for stated under § 447.510(f)(2), there are Development, Attn: Melissa Musotto,
review and approval. In order to fairly certain instances when records must be [CMS–2238–P], Room C4–26–05, 7500
evaluate whether an information maintained beyond the ten-year period. Security Boulevard, Baltimore, MD
21244–1850; and Office of Information V. Regulatory Impact Analysis alternatives and, if regulation is
and Regulatory Affairs, Office of [If you choose to comment on issues necessary, to select regulatory
Management and Budget, Room 10235, in this section, please include the approaches that maximize net benefits
New Executive Office Building, caption ‘‘Impact Analysis’’ at the (including potential economic,
Washington, DC 20503, Attn: Katherine beginning of your comments]. environmental, public health and safety
Astrich, CMS Desk Officer, CMS–2238– effects, distributive impacts, and
P, katherine_astrich@omb.eop.gov. Fax A. Overall Impact equity). A regulatory impact analysis
(202) 395–6974. We have examined the impacts of this (RIA) must be prepared for major rules
rule as required by Executive Order with ‘‘economically significant’’ effects
IV. Response to Comments 12866 (September 1993, Regulatory ($100 million or more in any 1 year). We
Planning and Review), the Regulatory believe this rule will have an
Because of the large number of public
Flexibility Act (RFA) (September 19, economically significant effect. We
comments we normally receive on believe the rule would save $8.4 billion
1980, Pub. L. 96–354), section 1102(b) of
Federal Register documents, we are not over the next five years ($4.93 billion
the Act, the Unfunded Mandates Reform
able to acknowledge or respond to them Act of 1995 (Pub. L. 104–4), Executive Federal savings and $3.52 billion State
individually. We will consider all Order 13132, and the Congressional savings as shown in the table below).
comments we receive by the date and Review Act (CRA, 5 U.S.C. 804(2)). This figure represents a 5.6 percent
time specified in the ‘‘DATES’’ February Executive Order 12866 (as amended reduction in total Medicaid drug
20, 2007, and, when we proceed with a by Executive Order 13258, which expenditures in Federal fiscal years
subsequent document, we will respond merely reassigns responsibility of 2007–2011. We consider this proposed
to the comments in the preamble to that duties) directs agencies to assess all rule to be a major rule for purposes of
document. costs and benefits of available regulatory the CRA.
STATE AND FEDERAL SAVINGS OVER 5 YEARS
[In millions]
FFY 2007–11
DRA section and provision Federal 2007 2008 2009 2010 2011 Total
State savings
Section 6001—Federal Upper Payment Limits and Federal ............. $465 $750 $1,075 $1,155 $1,250 $4,695
Other Provisions.
State ................. 330 535 765 825 890 3,345
Total .......... 795 1,285 1,840 1,980 2,140 8,040
Section 6002—Rebates on Physician-Administered Federal ............. 18 19 20 22 24 103

Drugs.
State ................. 13 14 15 16 18 76
Total .......... 31 33 35 38 42 179
Section 6003—Authorized Generics in Rebate Best Federal ............. 10 25 28 32 36 131

Price.
State ................. 7 19 21 24 27 98
Total .......... 17 44 49 56 63 229
Total Savings for FFY ........................................ Federal ............. 493 794 1,123 1209 1310 4,929
State ................. 350 568 801 865 935 3,519
Total .......... 843 1,362 1,924 2074 2245 8,448
All savings estimates were developed were applied to projected Medicaid collected rebates on physician-
by the Office of the Actuary in CMS. We prescription drug spending developed administered drugs. This amount was
note that the Congressional Budget for the President’s fiscal year 2007 then projected forward using historical
Office, in its estimates of the budgetary budget. Savings were phased in over data (2001–2005) and projections
effects of these provisions of the DRA, three years to allow for implementation consistent with the 2007 President’s
reached an almost identical estimate for lags. On the previous chart, the estimate Budget forecast for Medicaid spending
these years, about $4.8 billion in Federal for FFY 2007 through FFY 2010 to develop the total estimated impact.
outlay reduction compared to the CMS includes $5 million for the retail price The savings estimates for section 6003
estimate of $4.9 billion. survey. of the DRA—Reporting of authorized
Savings estimates for section 6001 of The savings estimates for section 6002 generics for Medicaid rebates—are
the DRA—FULs and other provisions— of the DRA—rebates on physician- based on the consensus of Medicaid
were derived from simulations of the administered drugs—are based on the experts and the review of available and
new FULs performed using price and 2004 OIG report, ‘‘Medicaid Rebates for relevant data. After estimating the
utilization data from the Medicaid Drug Physician-Administered Drugs.’’ A key impact of the proposal in the first year
Rebate Program combined with generic finding of the report is the amount of of implementation, the total impact was
group codes from First DataBank. additional rebates that could have been projected using assumptions consistent
Percent savings from these simulations collected in 2001 if all States had with the 2007 President’s Budget
forecast for Medicaid spending as well pay discounts be excluded from AMP. businesses if they have revenues of $9
as adjustments given that the proposal This would result in higher AMPs and, million or less in 1 year (http://
is limited to a subset of the prescription consequently, higher rebate payments. www.sba.gov/size/sizetable2002.html).
drug market. We have been told informally by Nearly all of the approximately 20,000
None of the estimates include Federal manufacturers that customary prompt physician’s practices that specialize in
or State administrative costs. We believe pay discounts are generally about 2 oncology, rheumatology and urology
these costs would be small as they percent. We have found no independent may experience some administrative
involve changes in work processes source to confirm this percentage. We burden due to new requirements that
rather than new activities. The resulting also do not know what percent of sales claims include the NDC for drugs
program savings would be many times qualify for customary prompt pay administered by these physicians. These
these costs. discounts. Based on this limited practices would be required to transfer
The RFA requires agencies to analyze information, we believe that the removal the NDC code for drugs administered by
options for regulatory relief of small of customary prompt pay discounts a physician to the electronic or paper
businesses and other small entities if a would cost manufacturers up to $160 claim. We estimate that 3,910,000
proposed or final rule would have a million (2 percent of $8 billion in rebate claims would be submitted a year. We
‘‘significant impact on a substantive payments annually). In this proposed derived this number by multiplying the
number of small entities.’’ For purposes regulation we also would remove sales 23 million annual Part B claims by the
of the RFA, small entities include small to nursing home pharmacies from AMP. percentage (17) of Medicare
businesses, non-profit organizations, We have been told by industry beneficiaries who are also Medicaid
and small governmental jurisdictions. representatives that nursing home beneficiaries. We believe most of the
Individuals and States are not included pharmacies receive larger discounts Medicaid beneficiaries who receive
in the definition of a small entity. For than other sectors, thus resulting in an physician-administered drugs are also
purposes of the RFA, three types of increase in AMP from this change. in Medicare. We then assume that it
small business entities are potentially However, because we have no would take 15 seconds per claim.
affected by this regulation. They are independent data on the cost of drugs to Multiplying 3,910,000 by 15 seconds
small pharmaceutical manufacturers nursing home pharmacies, we cannot equals 58,650,000 seconds or 16,292
participating in the Medicaid Drug quantify the effect of this provision hours (58,650,000/3600 seconds per
Rebate Program, small retail other than to say that we believe it hour). We multiplied 16,292 hours by
pharmacies, and physicians and other would increase rebates owed by drug the hourly wage and benefit rate of
practitioners (including small hospitals manufacturers. $21.14 for office and administrative staff
or other entities such as non-profit According to the SBA’s size published by the Department of Labor,
providers) that bill Medicaid for standards, a retail pharmacy is a small Bureau of Labor Statistics for March
physician-administered drugs. We will business if it has revenues of $ 6.5 2006 to estimate the annual cost to be
discuss each type of business in turn. million or less in 1 year (http:// $344,000. We divided the total cost of
According to the Small Business www.sba.gov/size/sizetable2002.html).
Administration’s (SBA) size standards, $344,000 by the 3,910,000 claims to
The SBA estimates that there are about estimate the cost per claim would be
drug manufacturers are small businesses 18,000 small pharmacies. These
if they have fewer than 500 employees under 9 cents. Calculated another way,
pharmacies would be affected by this the annual cost per physician practice
(http://www.sba.gov/size/ regulation as the law will result in lower
sizetable2002.html). Approximately 550 would be under $20 ($344,000 divided
FULs for most drugs subject to the
drug manufacturers participate in the by 20,000 equals about $17).
limits, thus reducing Medicaid
Medicaid Drug Rebate Program. We Accordingly, we believe that there is no
payments to pharmacies for drugs. The
believe that most of these manufacturers ‘‘significant impact’’ on these
revision to the FULs would generally
are small businesses. We anticipate that physicians.
reduce those limits and, thereby, reduce
this rule would have a small impact on Medicaid payment for drugs subject to According to the SBA’s size
small drug manufacturers. The rule the limits. The savings for section 6001 standards, hospitals are small
would require all drug manufacturers of the DRA reflect this statutory change. businesses if they have yearly revenue
participating in the Medicaid Drug The other provisions concerning of $31.5 million or less (http://
Rebate Program to submit pricing payment for drugs would provide States www.sba.gov/size/sizetable2002.html).
information (AMP) on each of their drug two new data points to use to set As with physician practices, outpatient
products on a monthly basis. Currently payment rates. Beginning in January units of hospitals would need to include
drug manufacturers are required to 2007, States may use AMP and retail NDCs on claims for physician-
submit similar information quarterly. In survey prices in their payment administered drugs. Outpatient hospital
addition, drug manufacturers would be methodologies. The savings for section claims for physician-administered drugs
required to submit two additional 6001 of the DRA do not reflect decreases are included in the 3,910,000 annual
pricing data elements—customary to State payments for drugs not on the total claims discussed in the previous
prompt pay discounts and nominal FUL list. As analyzed in detail below, paragraph. However, we believe that
prices—on each of their drugs on a we believe that these legislatively these costs could be reduced or
quarterly basis. We believe that drug mandated section 6001 savings will eliminated with a one-time systems
manufacturers currently have these potentially have a ‘‘significant impact’’ change to capture this code in the
data; therefore, the new requirement on some small, independent billing system. In any case, the total cost
does not require new data collection. pharmacies. The analysis in this section, of this change to hospitals would be
Rather, it simply requires that existing together with the remainder of the small, and we believe that there is no
information be reported to CMS. For preamble, constitutes an Initial ‘‘significant impact’’ on hospitals.
this reason, we believe the burden to be Regulatory Flexibility Analysis (IRFA) Other small entities such as non-profit
minimal. In addition, the proposed for purposes of compliance with the providers may also be affected by this
regulation would affect the level of RFA. provision. We do not have data to
rebates due from manufacturers. The According to the SBA’s size quantify how many of the 3,910,000
DRA provides that customary prompt standards, physician practices are small annual total claims are submitted by
these entities. In any case, the cost program. The rule would require all would increase rebates owed by drug
would be under 9 cents per claim. drug manufacturers participating in the manufacturers.
Section 1102(b) of the Act requires us Medicaid Drug Rebate Program to
2. Effects on State Medicaid Programs
to prepare an RIA if a rule may have a submit pricing information (AMP) on
significant impact on the operations of each of their drug products on a States share in the savings from this
a substantial number of small rural monthly basis. Currently drug rule. As noted in the table above, we
hospitals. This analysis must conform to manufacturers are required to submit estimate five-year State savings of over
the provisions of section 603 of the similar information quarterly. In $3.5 billion. State administrative costs
RFA. For purposes of section 1102(b) of addition, drug manufacturers would be associated with this regulation are
the Act, we define a small rural hospital required to submit two additional minor as States currently pay based on
as a hospital that is located outside of pricing data elements—customary a FUL for drugs subject to that limit,
a Core-Based Statistical Area and has prompt pay discounts and nominal determine their drug reimbursement
fewer than 100 beds. There are prices—on each of their drugs on a rates, and collect claims information on
approximately 700 small rural hospitals quarterly basis. We believe that drug physician-administered drugs.
that meet this definition. We do not manufacturers currently have these 3. Effects on Retail Pharmacies
know how many of these hospitals have data; therefore, the new requirement
Retail pharmacies would be affected
outpatient departments. However, we would not require new data collection.
by this regulation, as the law will result
believe that this rule would not have a Rather it simply requires that existing
in lower FULs for most drugs subject to
significant impact on small rural information be reported to CMS. For
the limits, thus reducing Medicaid
hospitals because the only provision this reason, we believe the burden to be
payments to pharmacies for drugs. The
that would affect small rural hospitals is minimal. The estimated startup burden revision to the FULs would generally
the requirement for those hospitals to to the manufacturers is $27.5 million for reduce those limits and, thereby, reduce
include the NDC on bills for drugs a one-time systems upgrade, or $50,000 Medicaid payment for drugs subject to
administered by physicians in the for each of the 550 manufacturers that the limits. The savings for section 6001
outpatient department. As the national participate in the Medicaid Drug Rebate of the DRA reflect this statutory change.
annual cost of this provision is Program. To estimate the ongoing The other provisions concerning
estimated at $344,000, the impact on burden, we expect that the payment for drugs would provide States
small rural hospitals would be minimal. manufacturers would each spend 208 two new data points to use to set
Section 202 of the Unfunded hours annually (114,400 total hours payment rates. Beginning in January
Mandates Reform Act of 1995 also annually) in complying with these 2007, States may use AMP and retail
requires that agencies assess anticipated requirements. The estimated annual survey prices in their payment
costs and benefits before issuing any operational expenses are $5.7 million, methodologies. The savings for section
rule whose mandates on States and which is 114,400 total annual hours 6001 of the DRA do not reflect decreases
private entities require spending in any multiplied by $37.50 per labor hour in to State payments for drugs not on the
one year of $100 million in 1995 dollars, wages and benefits, or $4.3 million in FUL list that may result if States change
updated annually for inflation. That labor burden, plus $1.4 million in their payment methodologies.
threshold level is currently technical support. The savings to the Medicaid program
approximately $125 million. This In addition, the proposed regulation would largely be realized through lower
proposed rule would mandate that drug would affect the level of rebates due payments to pharmacies. As shown
manufacturers provide information on from manufacturers. The DRA provides earlier in this analysis, the annual effect
drug prices, and that these data be used that customary prompt pay discounts be of lower FULs and related changes will
in calculating FULs. However, our excluded from AMP. This would result likely reduce pharmacy revenues by
estimate of costs to manufacturers (see in higher AMPs and, consequently, about $800 million in 2007, increasing
next section) falls far below the higher rebate payments. We have been to a $2 billion reduction annually by
threshold and we anticipate this rule told informally by manufacturers that 2011. These reductions, while large in
would save States $3.5 billion over the customary prompt pay discounts are absolute terms, represent only a small
5-year period from October 1, 2006 generally about two percent. We have fraction of overall pharmacy revenues.
through September 30, 2011. found no independent source to confirm According to recent data summarized by
Executive Order 13132 establishes this percentage. We also do not know the National Association of Chain Drug
certain requirements that an agency what percent of sales qualify for Stores (http://www.nacds.org/
must meet when it promulgates a customary prompt pay discounts. Based wmspage.cfm?parm1=507), total retail
proposed rule (and subsequent final on this limited information, we believe prescription sales in the United States,
rule) that imposes substantial direct that the removal of customary prompt including chain drug stores,
requirement costs on State and local pay discounts would cost manufacturers independent drug stores, supermarket,
governments, preempts State law, or up to $160 million (2 percent of $8 and mail order, totaled about $230
otherwise has Federalism implications. billion in rebate payments annually). In billion in 2005. Assuming,
Since this proposed rule would impose this proposed regulation, we also would conservatively, that sales will rise at
only minimal new administrative remove sales to nursing home only five percent a year, 2007 sales
burden on States and yield substantial pharmacies from AMP. We have been would be over $250 billion and 2011
savings to States, we believe that these told by industry representatives that sales well over $300 billion. Thus, the
costs can be absorbed by States from the nursing home pharmacies receive larger effect of this proposed rule would be to
substantial savings they would accrue. discounts than other sectors, thus reduce retail prescription drug revenues
B. Anticipated Effects resulting in an increase in AMP. by less than one percent, on average.
However, because we have no Actual revenue losses would be even
1. Effects on Drug Manufacturers independent data on the cost of drugs to smaller for two reasons. First, almost all
As previously indicated, nursing home pharmacies, we cannot of these stores sell goods other than
approximately 550 drug manufacturers quantify the effect of this provision prescription drugs, and overall sales
participate in the Medicaid Drug Rebate other than to say that we believe it average more than twice as much as
prescription drug sales. Second, We also note that CMS has encouraged on small retail pharmacies, particularly
pharmacies have the ability to mitigate States to collect information on those in low income areas where there
the effects of the proposed rule by physician-administered drug claims to are high concentrations of Medicaid
changing purchasing practices. The 250 enable them to collect rebates. Some beneficiaries. We request any
percent FUL will typically be lower States have required that NDCs be information that may help us better
than the prices available to pharmacies included on claims and others are in the assess those effects before we make final
only when one or more very low cost process of doing so. We expect that, in decisions. The preamble under
generic drugs are included in the the absence of the DRA requirement, the ‘‘Definition of Retail Pharmacy Class of
calculation. Pharmacies will often be number of States requiring NDCs on Trade and Determination of AMP’’
able to switch their purchasing to the these claims would have increased. provides additional information
lowest cost drugs and mitigate the effect regarding the entities included in the
of the sales loss by lowering costs. 6. Effects on Small Business Entities
retail pharmacy class of trade and the
Although it is clear that the effects As previously discussed, for purposes discounts or other price concessions for
will be small on the great majority of of the RFA, three types of small drugs provided to the retail pharmacy
pharmacies, whether chain or business entities are potentially affected class of trade. As shown earlier, the
independent, we are unable to estimate by this regulation. This regulation annual effect of lower FULs and related
quantitatively effects on ‘‘small’’ would affect small pharmaceutical changes will likely reduce overall
pharmacies, particularly those in low- manufacturers participating in the pharmacy revenues by about $800
income areas where there are high Medicaid Drug Rebate Program, small million in 2007, increasing to a $2
concentrations of Medicaid retail pharmacies, and physicians and billion reduction annually by 2011.
beneficiaries. We request any other practitioners (including small Nearly all of the approximately 20,000
information that may help us better hospitals or other entities such as non- physician practices that specialize in
assess those effects before we make final profit providers). oncology, rheumatology and urology are
decisions. Because of these According to the SBA’s size considered small businesses. The rule
uncertainties, we have concluded that standards, we believe that most of the would impose some administrative
this proposed rule is likely to have a 550 pharmaceutical manufacturers in burden on these practices due to new
‘‘significant impact’’ on some the Medicaid Drug Rebate Program are requirements that claims include the
pharmacies. small businesses. We previously NDC for physician-administered drugs.
4. Effects on Physicians indicated that this rule impacts drug As shown earlier, we believe that the
manufacturers by requiring them to annual cost per claim would be under
This regulation would affect
physician practices that provide and bill submit pricing information (AMP) on 9 cents and the annual cost per
Medicaid for physician-administered each of their drug products on a physician practice would be under $20.
drugs. This includes about 20,000 monthly basis with an estimated impact Accordingly, we believe that there is no
physicians as well as hospitals with that is minimal. The rule would also significant impact on these physician
outpatient departments. The effect on increase the amount of drug rebates that practices.
physicians is the same as discussed in manufacturers would pay as a result of We also previously indicated that this
section A—Overall Impact above for removing customary prompt pay rule would not have a significant impact
small businesses because all or nearly discounts and nursing home sales from on the operations of small rural
all physician offices are small AMP, which is used in the rebate hospitals. There are approximately 700
businesses. calculation. The exclusion of customary small rural hospitals that meet the small
prompt pay discounts would cost business standard. As previously
5. Effects on Hospitals manufacturers up to $160 million (2 discussed, small rural hospitals would
This regulation would affect hospitals percent of $8 billion in rebate payments need to include the NDC on claims for
with outpatient departments that annually). Additional detail regarding physician-administered drugs through
provide and bill Medicaid for physician- the effects of this proposed rule for the outpatient departments. We do not have
administered drugs. As discussed above, determination of drug prices and data to quantify how many of the overall
hospitals with outpatient departments calculation of drug rebate liability for claims for physician-administered drugs
would need to include the NDC on drug manufacturers is described in the are submitted by these 700 small rural
claims for physician-administered preamble under ‘‘Definition of Retail hospitals. In any case, the cost would be
drugs. We believe this would need to be Pharmacy Class of Trade and under 9 cents per claim.
done manually or would require a one- Determination of AMP.’’ The following chart depicts the
time systems change. We believe the We estimate that 18,000 small retail number of small entities and the
cost of adding the NDC to each claim pharmacies would be affected by this estimated economic impact for each
would be minimal. We are not able to regulation. However, we are unable to category of small entity affected by this
estimate the cost to make this change. specifically estimate quantitative effects rule.
Number
Small entity affected Estimated economic impact
by rule
Pharmaceutical Manufacturers in Medicaid Drug Rebate Pro- 550 $160 million (2 percent of $8 billion) higher rebates result from
gram. removal of customary prompt pay discounts from rebate cal-
culations.
Independent cost data not available for excluded nursing
home drug sales that are expected to increase rebate cost.
Small Retail Pharmacies ............................................................. 18,000 Reduces overall pharmacy revenues by about $800 million in
2007 increasing to $2 billion annually by 2011.
Unable to quantitatively estimate effects on small retail phar-
macies, particularly in low income areas.
Number
Small entity affected Estimated economic impact
by rule
Physicians in their Offices, Hospital Outpatient Settings or 20,000 Under 9 cents per claim to enter NDC number.
Other Entities (e.g., Non-profit Facilities) that Specialize in About $17 annual cost per physician practice to enter NDC
Oncology, Rheumatology and Urology. number on claims for physician-administered drugs.
Total estimated impact is $344,000.
Small Rural Hospitals ................................................................. 700 Minimal impact.
C. Alternatives Considered price to other facilities or entities that and reduce burden on small
We considered a number of different the Secretary determines to be safety net pharmacies.
policies and approaches during the providers to which sales of drugs at
D. Other Requirements in the Regulatory
development of the proposed rule. nominal prices would be appropriate.
Flexibility Act
With regard to the definition of AMP, However, we were concerned that
we considered one definition for expanding the list of entities eligible for The RFA lists five general
quarterly AMP and a different definition nominal pricing would drive up best requirements for an IRFA and four
for monthly AMP. However, we believe price, which would effectively lower the categories of burden-reducing
the better reading of statute is for AMP amount of rebates manufacturers pay for alternatives. We know of no relevant
to be defined the same way for quarterly Medicaid drugs. Federal rules that duplicate, overlap, or
or monthly reporting. We considered using a non-weighted conflict with the proposed rule. The
We also considered redefining the AMP, which is specific to a package preceding analysis, together with the
entities included in ‘‘retail pharmacy size, to establish the FUL. However, we rest of this preamble, addresses all these
class of trade’’ for purposes of the decided to continue to base AMP on all general requirements.
definition of AMP. Options considered package sizes for each drug. We did not We have not, however, addressed the
included whether to include or exclude find any indication that the Congress various categories of burden reduction
sales to nursing home pharmacies, intended to change how package size is listed in the RFA as appropriate for
PBMs, and mail order pharmacies. We used for AMP. Such a change would be IRFAs. These alternatives, such as an
chose to propose to exclude sales to burdensome on manufacturers and exemption from coverage for small
nursing home pharmacies. would have no impact on how States entities, establishment of less onerous
We considered retaining the current pay for drugs. requirements for small entities, or use of
base date AMP rather than allowing performance rather than design
manufacturers to recalculate their base We considered not making an standards, simply do not appear to
date AMP to reflect the revised exception to using the lowest AMP for apply in a situation where uniform
definition of AMP. However, we drugs in a FUL group to establish the payment standards are being
decided that retaining the current base upper limit for the group. However, we established. However, we welcome
date AMP is unwarranted because it were concerned that low outlier prices comments with suggestions for
would create a financial burden on might result in only one drug being improvements we can make, consistent
manufacturers that was not intended by available at or near the FUL price and with the statute, to minimize any
section 6001 of the DRA. that a sufficient supply of the drug to unnecessary burdens on pharmacies or
We considered several options meet the national Medicaid need may other affected entities.
concerning the timeframe to be covered not be available at that price.
As discussed extensively earlier in the E. Accounting Statement
by the monthly AMP. We considered
requiring manufacturers to report the preamble, we believe that mail order As required by OMB’s Circular A–4
same quarterly AMP three times over sales and the activities of PBMs are an (available at http://
the quarter, and reflect any changes to important part of the wholesale and www.whitehouse.gov/omb/circulars/
the quarterly AMP vis-à-vis the monthly retail markets for drugs. They reflect the a004/a-4.pdf), in the table below, we
reports. However, we did not believe realities of today’s marketplace for have prepared an accounting statement
that this timeframe would provide consumers of prescription drugs. showing the classification of the
useful pricing information to States. We However, there are difficulties in expenditures associated with the
also considered establishing a rolling dealing with both segments of the provisions of this proposed rule. This
three-month period for the monthly market and we specifically request table provides our best estimate of the
AMP. While this may yield updated comments on ways to handle these decreases in Medicaid payments under
pricing information, we felt this would components of the marketplace. We also sections 6001 ‘‘ 6003 of the DRA. All
be too burdensome for manufacturers to welcome comments on any options that expenditures are classified as transfers
implement. would maintain the overall savings of to the Federal and State Medicaid
We considered proposing to extend the proposed rule, appropriately programs from retail pharmacies and
the nominal price exclusion from best encompass the entire retail marketplace, drug manufacturers.
ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2007 TO CY 2011

[In millions/year]
Discount
Category Transfers rate From whom to whom?
(percent)
Federal Annualized Monetized Trans- $957.8 7 Retail Pharmacies and Drug Manufacturers to the Federal Government.
fers.
ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2007 TO CY 2011—Continued

[In millions/year]
Discount
Category Transfers rate From whom to whom?
(percent)
973.6 3
Other Annualized Monetized Trans- 683.8 7 Retail Pharmacies and Drug Manufacturers to the State Governments.
fers.
695.1 3
F. Conclusion care. Section 447.371 implements expenditures for certain physician-

We estimate savings from this section 1902(a)(13)(F) of the Act, which administered drugs.
regulation of $8.4 billion over five years, requires that the State plan provide for (3) Implements section 1902(a)(54) of
$4.9 billion to the Federal Government payment for rural health clinic services the Act with regard to a State plan that
and $3.5 billion to the States. Most of in accordance with regulations provides covered outpatient drugs.
these savings result from a change in prescribed by the Secretary. (b) Purpose. This subpart specifies
how the FULs on multiple source drugs certain requirements in the Deficit
§ 447.301 [Removed] Reduction Act of 2005 and other
are calculated and from a change in how
3. Section 447.301 is removed. requirements pertaining to Medicaid
authorized generic drugs are treated for
AMP and best price. The majority of the payment for drugs.
§ 447.331 [Removed]
savings would come from lower 4. Section 447.331 is removed. § 447.502 Definitions.
reimbursement to retail pharmacies. The Bona fide service fees mean fees paid
provision on physician-administered § 447.332 [Removed]
by a manufacturer to an entity, that
drugs does not change the legal liability 5. Section 447.332 is removed. represent fair market value for a bona
of drug manufacturers for paying rebates fide, itemized service actually
but would make it easier for States to § 447.333 [Removed]
performed on behalf of the manufacturer
collect these rebates. 6. Section 447.333 is removed. that the manufacturer would otherwise
While the effects of this regulation are
§ 447.334 [Removed] perform (or contract for) in the absence
substantial, they are a result of changes
7. Section 447.334 is removed. of the service arrangement, and that are
to the law.
not passed on in whole or in part to a
In accordance with the provisions of 8. Subpart I is revised to read as
client or customer of an entity, whether
Executive Order 12866, this regulation follows:
or not the entity takes title to the drug.
was reviewed by the OMB. Subpart I—Payment for Drugs Brand name drug means a single
List of Subjects in 42 CFR Part 447 Sec. source or innovator multiple source
Accounting, Administrative practice 447.500 Basis and purpose. drug.
447.502 Definitions. Bundled sale means an arrangement
and procedure, Drugs, Grant programs— 447.504 Determination of AMP.
health, Health facilities, Health regardless of physical packaging under
447.505 Determination of best price. which the rebate, discount, or other
professions, Medicaid, Reporting and 447.506 Authorized generic drugs.
recordkeeping requirements, Rural price concession is conditioned upon
447.508 Exclusion from best price of certain
areas. sales at a nominal price. the purchase of the same drug or drugs
For the reasons set forth in the 447.510 Requirements for manufacturers. of different types (that is, at the nine-
preamble, the Centers for Medicare & 447.512 Drugs: Aggregate upper limits of digit National Drug Code (NDC) level) or
Medicaid Services propose to amend 42 payment. some other performance requirement
CFR chapter IV as set forth below: 447.514 Upper limits for multiple source (for example, the achievement of market
drugs. share, inclusion or tier placement on a
PART 447—PAYMENTS FOR 447.516 Upper limits for drugs furnished as formulary), or, where the resulting
part of services. discounts or other price concessions are
SERVICES
447.518 State plan requirements, findings
greater than those which would have
1. The authority citation for part 447 and assurances.
447.520 FFP: Conditions relating to been available had the bundled drugs
continues to read as follows: been purchased separately or outside
physician-administered drugs.
Authority: Sec. 1102 of the Social Security the bundled arrangement. For bundled
Act (42 U.S.C. 1302). Subpart I—Payment for Drugs sales, the discounts are allocated
proportionally to the dollar value of the
Subpart F—Payment Methods for § 447.500 Basis and purpose. units of each drug sold under the
Other Institutional and Non- (a) Basis. This subpart— bundled arrangement. For bundled sales
institutional Services (1) Interprets those provisions of where multiple drugs are discounted,
2. Section 447.300 is revised to read section 1927 of the Act that set forth the aggregate value of all the discounts
as follows: requirements for drug manufacturers’ should be proportionately allocated
calculating and reporting average across all the drugs in the bundle.
§ 447.300 Basis and purpose. manufacturer prices (AMPs) and that set Consumer Price Index—Urban (CPI–
In this subpart, § 447.302 through upper payment limits for covered U) means the index of consumer prices
§ 447.325 and § 447.361 implement outpatient drugs. developed and updated by the U.S.
section 1902(a)(30) of the Act, which (2) Implements section 1903(i)(10) of Department of Labor. It is the CPI for all
requires that payments be consistent the Act with regard to the denial of urban consumers (U.S. average) for the
with efficiency, economy and quality of Federal financial participation (FFP) in month before the beginning of the
calendar quarter for which the rebate is distributor of drugs or a retail pharmacy Cosmetic Act (FFDCA)) for a calendar
paid. licensed under State law. quarter, the average price received by
Dispensing fee means the fee which— (3) With respect to authorized generic the manufacturer for the drug in the
(1) Is incurred at the point of sale and products, the term ‘‘manufacturer’’ will United States from wholesalers for
pays for costs in excess of the ingredient also include the original holder of the drugs distributed to the retail pharmacy
cost of a covered outpatient drug each NDA. class of trade. AMP shall be determined
time a covered outpatient drug is (4) With respect to drugs subject to without regard to customary prompt pay
dispensed; private labeling arrangements, the term discounts extended to wholesalers.
(2) Includes only pharmacy costs ‘‘manufacturer’’ will also include the AMP shall be calculated to include all
associated with ensuring that possession entity that does not possess legal title to sales and associated discounts and other
of the appropriate covered outpatient the NDC. price concessions provided by the
drug is transferred to a Medicaid Multiple source drug means, with manufacturer for drugs distributed to
recipient. Pharmacy costs include, but respect to a rebate period, a covered the retail pharmacy class of trade unless
are not limited to, any reasonable costs outpatient drug for which there is at the sale, discount, or other price
associated with a pharmacist’s time in least one other drug product which— concession is specifically excluded by
checking the computer for information (1) Is rated as therapeutically statute or regulation or is provided to an
about an individual’s coverage, equivalent. For the list of drug products entity specifically excluded by statute or
performing drug utilization review and rated as therapeutically equivalent, see regulation.
preferred drug list review activities, the FDA’s most recent publication of (b) Average unit price means a
measurement or mixing of the covered ‘‘Approved Drug Products with manufacturer’s quarterly sales included
outpatient drug, filling the container, Therapeutic Equivalence Evaluations’’ in AMP less all required adjustments
beneficiary counseling, physically which is available at http:// divided by the total units sold and
providing the completed prescription to www.fda.gov/cder/orange/default.htm included in AMP by the manufacturer
the Medicaid beneficiary, delivery, or can be viewed at the FDA’s Freedom in a quarter.
special packaging, and overhead of Information Public Reading Room at (c) Customary prompt pay discount
associated with maintaining the facility 5600 Fishers Lane, rm. 12A–30, means any discount off the purchase
and equipment necessary to operate the Rockville, MD 20857; price of a drug routinely offered by the
pharmacy; and (2) Is pharmaceutically equivalent and manufacturer to a wholesaler for prompt
(3) Does not include administrative bioequivalent, as determined by the payment of purchased drugs within a
costs incurred by the State in the FDA; and specified time.
operation of the covered outpatient drug (3) Is sold or marketed in the United (d) Net sales means quarterly gross
benefit including systems costs for States during the rebate period. sales revenue less cash discounts
interfacing with pharmacies. National drug code (NDC) means the allowed and all other price reductions
Estimated acquisition cost means the 11-digit numerical code maintained by (other than rebates under section 1927
agency’s best estimate of the price the FDA that indicates the labeler, of the Act or price reductions
generally and currently paid by product, and package size, unless specifically excluded by statute or
providers for a drug marketed or sold by otherwise specified in this part as being regulations) which reduce the amount
a particular manufacturer or labeler in without respect to package size (i.e., the received by the manufacturer.
the package size of drug most frequently nine-digit numerical code). (e) Retail pharmacy class of trade
purchased by providers. National rebate agreement means the means any independent pharmacy,
Innovator multiple source drug means rebate agreement developed by CMS chain pharmacy, mail order pharmacy,
a multiple source drug that was and entered into by CMS on behalf of pharmacy benefit manager (PBM), or
originally marketed under an original the Secretary or his designee and a other outlet that purchases, or arranges
new drug application (NDA) approved manufacturer to implement section 1927 for the purchase of, drugs from a
by the Food and Drug Administration of the Act. manufacturer, wholesaler, distributor, or
(FDA). It includes a drug product Nominal price means a price that is other licensed entity and subsequently
marketed by any cross-licensed less than 10 percent of the AMP in the sells or provides the drugs to the general
producers or distributors operating same quarter for which the AMP is public.
under the NDA and a covered outpatient computed. (f) Wholesaler means any entity
drug approved under a product license Rebate period means a calendar (including a pharmacy, chain of
approval, establishment license quarter. pharmacies, or PBM) to which the
approval or antibiotic drug approval. Single source drug means a covered manufacturer sells, or arranges for the
Manufacturer means any entity that outpatient drug that is produced or sale of, the covered outpatient drugs,
possesses legal title to the NDC for a distributed under an original NDA but that does not relabel or repackage
covered drug or biological product approved by the FDA, including a drug the covered outpatient drug.
and— product marketed by any cross-licensed (g) Sales, rebates, discounts, or other
(1) Is engaged in the production, producers or distributors operating price concessions included in AMP.
preparation, propagation, compounding, under the NDA. It also includes a Except with respect to those sales
conversion, or processing of covered covered outpatient drug approved under identified in paragraph (h) of this
outpatient drug products, either directly a product license approval, section, AMP for covered outpatient
or indirectly by extraction from establishment license approval, or drugs shall include—
substances of natural origin, or antibiotic drug approval. (1) Sales to wholesalers, except for
independently by means of chemical those sales that can be identified with

synthesis, or by a combination of § 447.504 Determination of AMP. adequate documentation as being
extraction and chemical synthesis; or (a) AMP means, with respect to a subsequently sold to any of the
(2) Is engaged in the packaging, covered outpatient drug of a excluded entities as specified in
repackaging, labeling, relabeling, or manufacturer (including those sold paragraph (h) of this section;
distribution of covered outpatient drug under an NDA approved under section (2) Sales to other manufacturers who
products and is not a wholesale 505(c) of the Federal Food, Drug, and act as wholesalers and do not
repackage/relabel under the purchaser’s (3) Any depot prices (including for which the AMP is computed. Best
NDC, including private labeling Tricare) and single award contract price shall be calculated to include all
agreements; prices, as defined by the Secretary, of sales and associated discounts and other
(3) Sales (direct and indirect) to any agency of the Federal Government; price concessions provided by the
hospitals, where the drug is used in the (4) Sales to hospitals (direct and manufacturer to any entity unless the
outpatient pharmacy; indirect), where the drug is used in the sale, discount, or other price concession
(4) Sales at nominal prices to any inpatient setting; is specifically excluded by statute or
entity except a covered entity described (5) Sales to health maintenance regulation or is provided to an entity
in section 340B(a)(4) of the Public organizations (HMOs), including specifically excluded by statute or
Health Service Act (PHSA), an managed care organizations (MCOs); regulation from the rebate calculation.
intermediate care facility for the (6) Sales to long-term care facilities, (b) For purposes of this section,
mentally retarded (ICF/MR) providing including nursing home pharmacies; provider means a hospital, HMO,
services as set forth in § 440.150 of this (7) Sales to wholesalers where the including an MCO or entity that treats
chapter, or a State-owned or operated drug is distributed to the non-retail or provides coverage or services to
nursing facility providing services as set pharmacy class of trade; individuals for illnesses or injuries or
forth in § 440.155 of this chapter; (8) Sales to wholesalers or distributors provides services or items in the
(5) Sales to retail pharmacies where the drug is relabeled under the provisions of health care.
including discounts or other price wholesalers’ or distributors’ NDC (c) Prices included in best price.
concessions that adjust prices either number; Except with respect to those prices
directly or indirectly on sales of drugs (9) Manufacturer coupons redeemed identified in paragraph (d) of this
to the retail pharmacy class of trade; by a consumer; section and § 447.505 of this subpart,
(6) Discounts, rebates, or other price (10) Free goods, not contingent upon best price for covered outpatient drugs,
concessions to PBMs associated with any purchase requirement; includes—
sales for drugs provided to the retail (11) Bona fide service fees; (1) Prices to wholesalers;
pharmacy class of trade; (12) Customary prompt pay discounts (2) Prices to any retailer, including
(7) Sales directly to patients; extended to wholesalers; and PBM rebates, discounts or other price
(8) Sales to outpatient clinics; (13) Returned goods when returned in concessions that adjust prices either
(9) Sales to mail order pharmacies; good faith. directly or indirectly on sales of drugs;
(10) Rebates, discounts, or other price (i) Further clarification of AMP (3) Prices to providers (e.g., hospitals,
concessions (other than rebates under calculation. (1) AMP includes cash HMOs/MCOs, physicians, nursing
section 1927 of the Act or as otherwise discounts, free goods that are contingent facilities, and home health agencies);
specified in the statute or regulations) on any purchase requirement, volume (4) Prices available to non-profit
associated with sales of drugs provided discounts, PBM price concessions, entities;
to the retail pharmacy class of trade; chargebacks, incentives, administrative (5) Prices available to governmental
(11) Manufacturer coupons redeemed fees, service fees, (except bona-fide entities within the United States;
by any entity other than the consumer service fees), distribution fees, and any (6) Prices of authorized generic drugs;
that are associated with sales of drugs (7) Prices of sales directly to patients;
other discounts or price reduction and (8) Prices available to mail order
provided to the retail pharmacy class of rebates, other than rebates under section pharmacies;
trade; and 1927 of the Act, which reduce the price (9) Prices available to outpatient
(12) Sales and associated rebates, received by the manufacturer for drugs clinics;
discounts and other price concessions distributed to the retail pharmacy class (10) Prices to other manufacturers
under the Medicare Part D, Medicare of trade. who act as wholesalers and do not
Advantage Prescription Drug Program (2) AMP is calculated as a weighted repackage/relabel under the purchaser’s
(MA–PD), State Children’s Health average of prices for all the NDC, including private labeling
Insurance Program (SCHIP), State manufacturer’s package sizes for each agreements;
pharmaceutical assistance programs covered outpatient drug sold by the (11) Prices to entities that repackage/
(SPAPs), and Medicaid programs that manufacturer during a rebate period. It relabel under the purchaser’s NDC,
are associated with sales of drugs is calculated as net sales divided by including private labeling agreements, if
provided to the retail pharmacy class of number of units sold, excluding goods that entity also is an HMO or other non-
trade (except for rebates under section or any other items given away unless excluded entity; and
1927 of the Act or as otherwise specified contingent on any purchase (12) Manufacturer coupons redeemed
in the statute or regulations). requirements. by any entity other than the consumer.
(h) Sales, rebates, discounts, or other (3) The manufacturer must adjust the (d) Prices excluded from best price.
price concessions excluded from AMP. AMP for a rebate period if cumulative Best price excludes:
AMP excludes— discounts, rebates, or other (1) Any prices on or after October 1,
(1) Any prices on or after October 1, arrangements subsequently adjust the 1992, charged to the IHS, the DVA, a
1992, to the Indian Health Service (IHS), prices actually realized. State home receiving funds under 38
the Department of Veterans Affairs U.S.C. 1741, the DoD, the PHS, or a
(DVA), a State home receiving funds § 447.505 Determination of best price. covered entity described in subsection
under 38 U.S.C. 1741, the Department of (a) Best price means, with respect to (a)(5)(B) of the Act (including inpatient
Defense (DoD), the Public Health a single source drug or innovator prices charged to hospitals described in
Service (PHS), or a covered entity multiple source drug of a manufacturer section 340B(a)(4)(L) of the PHSA);
described in subsection (a)(5)(B) of the (including any drug sold under an NDA (2) Any prices charged under the FSS
Act (including inpatient prices charged approved under section 505(c) of the of the GSA;
to hospitals described in section FFDCA), the lowest price available from (3) Any prices paid by an SPAP;
340B(a)(4)(L) of the PHSA); the manufacturer during the rebate (4) Any depot prices (including
(2) Any prices charged under the period to any entity in the United States Tricare) and single award contract
Federal Supply Schedule (FSS) of the in any pricing structure (including prices, as defined by the Secretary, of
General Services Administration (GSA); capitated payments), in the same quarter any agency of the Federal Government;
(5) Any prices charged which are (b) Inclusion of authorized generic prompt pay discounts, or nominal
negotiated by a prescription drug plan drugs in AMP. A manufacturer holding prices for a period not to exceed 12
under Part D of title XVIII, by any MA– title to the original NDA of the quarters from the quarter in which the
PD plan under Part C of such title with authorized generic drug must include data were due.
respect to covered Part D drugs, or by the direct and indirect sales of this drug (c) Base date AMP report. (1) A
a qualified retiree prescription drug in its AMP. manufacturer must report base date
plan (as defined in section 1860D– (c) Inclusion of authorized generic AMP to CMS for the first full calendar
22(a)(2) of the Act) with respect to such drugs in best price. A manufacturer quarter following [publication date of
drugs on behalf of individuals entitled holding title to the original NDA of an the final rule].
to benefits under Part A or enrolled authorized generic drug approved under (2) Any manufacturer’s recalculation
under Part B of Medicare; section 505(c) of the FFDCA must of the base date AMP must only reflect
(6) Rebates or supplemental rebates include the price of such drug in the the revisions to AMP as provided for in
paid to Medicaid States agencies under computation of best price for the single § 447.504(e) of this subpart.
section 1927 of the Act; source or innovator multiple source (d) Monthly AMP. (1) Monthly AMP
(7) Prices negotiated under a drug during the rebate period to any means the AMP that is calculated on a
manufacturer’s sponsored Drug manufacturer, wholesaler, retailer, monthly basis. A manufacturer must
Discount Card Program; provider, HMO, non-profit entity, or submit a monthly AMP to CMS not later
(8) Manufacturer coupons redeemed governmental entity within the United than 30 days after the last day of each
by a consumer; States. prior month.
(2) Calculation of monthly AMP. In
(9) Goods provided free of charge § 447.508 Exclusion from best price of calculating monthly AMP, a
under a manufacturers’ patient certain sales at a nominal price. manufacturer may estimate the impact
assistance programs;
(a) Exclusion from best price. Sales of of its end-of-quarter discounts and
(10) Free goods, not contingent upon
covered outpatient drugs by a allocate these discounts in the monthly
any purchase requirement;
manufacturer at nominal prices are AMPs reported to CMS throughout the
(11) Nominal prices to certain entities excluded from best price when rebate period. The monthly AMP should
as set forth in § 447.508 of this subpart; purchased by the following entities: be calculated based on the methodology
and (1) A covered entity described in in § 447.504 of this subpart, except the
(12) Bona fide service fees. section 340B(a)(4) of the PHSA, period covered will be one month.
(e) Further clarification of best price. (2) An ICF/MR providing services as Further, monthly AMP should be
(1) Best price shall be net of cash set forth in § 440.150 of this chapter; or calculated based on the best data
discounts, free goods that are contingent (3) A State-owned or operated nursing available to the manufacturer at the time
on any purchase requirement, volume facility providing services as set forth in of submission.
discounts, customary prompt pay § 440.155 of this chapter. (3) Prohibition against reporting
discounts, chargebacks, returns, (b) Nonapplication. This restriction revised monthly AMP. In calculating
incentives, promotional fees, shall not apply to sales by a monthly AMP, a manufacturer should
administrative fees, service fees (except manufacturer of covered outpatient not report a revised monthly AMP later
bona fide service fees), distribution fees, drugs that are sold under a master than 30 days after each month, except
and any other discounts or price agreement under 38 U.S.C. 8126. in exceptional circumstances authorized
reductions and rebates, other than by the Secretary.
rebates under section 1927 of the Act, § 447.510 Requirements for (e) Certification of pricing reports.
which reduce the price available from manufacturers.
Each report submitted under paragraphs
the manufacturer. (a) Quarterly reports. A manufacturer (a) through (d) of this section must be
(2) Best price must be determined on must report product and pricing certified by one of the following:
a unit basis without regard to special information for covered outpatient (1) The manufacturer’s Chief
packaging, labeling or identifiers on the drugs to CMS not later than 30 days Executive Officer (CEO);
dosage form or product or package, and after the end of the rebate period. The (2) The manufacturer’s Chief
must not take into account prices that quarterly pricing report must include: Financial Officer (CFO); or
are nominal in amount as described in (1) AMP, calculated in accordance (3) An individual who has delegated
§ 447.510 of this subpart. with § 447.504 of this subpart; authority to sign for, and who reports
(3) The manufacturer must adjust the (2) Best price, calculated in directly to, the manufacturer’s CEO or
best price for a rebate period if accordance with § 447.505 of this CFO.
cumulative discounts, rebates, or other subpart; (f) Recordkeeping requirements. (1) A
arrangements subsequently adjust the (3) Customary prompt pay discounts, manufacturer must retain records
prices available from the manufacturer. which shall be reported as an aggregate (written or electronic) for 10 years from
dollar amount which includes discounts the date the manufacturer reports data
§ 447.506 Authorized generic drugs. paid to all purchasers in the rebate to CMS for that rebate period. The
(a) Authorized generic drug defined. period; and records must include these data and any
For the purposes of this subpart, (4) Prices that fall within the nominal other materials from which the
authorized generic drug means any drug price exclusion, which shall be reported calculations of the AMP, the best price,
sold, licensed or marketed under an as an aggregate dollar amount and shall customary prompt pay discounts, and
NDA approved by the FDA under include all sales to the entities listed in nominal prices are derived, including a
section 505(c) of the FFDCA; and § 447.508(a) of this subpart for the record of any assumptions made in the
marketed, sold or distributed directly or rebate period. calculations. The 10-year time frame
indirectly under a different product (b) Timeframe for reporting revised applies to a manufacturer’s quarterly
code, labeler code, trade name, trade AMP, best price, customary prompt pay and monthly submissions of pricing
mark, or packaging (other than discounts, or nominal prices. A data, as well as any revised quarterly
repackaging the listed drug for use in manufacturer must report to CMS pricing data subsequently submitted to
institutions) than the listed drug. revisions to AMP, best price, customary CMS.
(2) A manufacturer must retain § 447.514 Upper limits for multiple source § 447.516 Upper limits for drugs furnished
records beyond the 10-year period if drugs. as part of services.
both of the following circumstances (a) Establishment and issuance of a The upper limits for payment for
exist: listing. prescribed drugs in this subpart also
(i) The records are the subject of an (1) CMS will establish and issue apply to payment for drugs provided as
audit or of a government investigation listings that identify and set upper part of skilled nursing facility services
related to pricing data that are used in limits for multiple source drugs that and intermediate care facility services
AMP, best price, customary prompt pay meet the following requirements: and under prepaid capitation
discounts, or nominal prices of which (i) The FDA has rated two or more arrangements.
the manufacturer is aware. drug products as therapeutically and
(ii) The audit findings or investigation pharmaceutically equivalent in their § 447.518 State plan requirements,
most current edition of ‘‘Approved Drug findings and assurances.
related to the AMP, best price,
customary prompt pay discounts, or Products with Therapeutic Equivalence (a) State plan. The State plan must
nominal price have not been resolved. Evaluations’’ (including supplements or describe comprehensively the agency’s
(g) Data reporting format. All product in successor publications), regardless of payment methodology for prescription
and pricing data, whether submitted on whether all such formulations are rated drugs.
a quarterly or monthly basis, must be as such and only such formulations (b) Findings and assurances. Upon
submitted to CMS in an electronic shall be used when determining any proposing significant State plan changes
format. such upper limit. in payments for prescription drugs, and
(ii) At least two suppliers list the at least annually for multiple source
§ 447.512 Drugs: Aggregate upper limits of drug, which has met the criteria in drugs and triennially for all other drugs,
payment. paragraph (a)(1)(i) of this section, based the agency must make the following
(a) Multiple source drugs. Except for on all listings contained in current findings and assurances:
brand name drugs that are certified in editions (or updates) of published (1) Findings. The agency must make
accordance with paragraph (c) of this compendia of cost information for drugs the following separate and distinct
section, the agency payment for available for sale nationally. findings:
multiple source drugs must not exceed, (2) CMS publishes the list of multiple (i) In the aggregate, its Medicaid
in the aggregate, the amount that would source drugs for which upper limits expenditures for multiple source drugs,
result from the application of the have been established and any revisions identified and listed in accordance with
specific limits established in accordance to the list in Medicaid program § 447.514(a) of this subpart, are in
with § 447.514 of this subpart. If a issuances. accordance with the upper limits
specific limit has not been established (b) Specific upper limits. The agency’s specified in § 447.514(b) of this subpart;
under § 447.514 of this subpart, then the payments for multiple source drugs and
rule for ‘‘other drugs’’ set forth in identified and listed periodically by (ii) In the aggregate, its Medicaid
paragraph (b) applies. CMS in Medicaid program issuances expenditures for all other drugs are in
(b) Other drugs. The agency payments must not exceed, in the aggregate, accordance with § 447.512 of this
for brand name drugs certified in payment levels determined by applying subpart.
accordance with paragraph (c) of this for each drug entity a reasonable (2) Assurances. The agency must
section and drugs other than multiple dispensing fee established by the State make assurances satisfactory to CMS
source drugs for which a specific limit agency plus an amount established by that the requirements set forth in
has been established under § 447.514 of CMS that is equal to 250 percent of the §§ 447.512 and 447.514 of this subpart
this subpart must not exceed, in the average manufacturer price (as concerning upper limits and in
aggregate, payment levels that the computed without regard to customary paragraph (b)(1) of this section
agency has determined by applying the prompt pay discounts extended to concerning agency findings are met.
lower of the— wholesalers) for the least costly (c) Recordkeeping. The agency must
(1) Estimated acquisition costs plus therapeutic equivalent. maintain and make available to CMS,
reasonable dispensing fees established (c) Ensuring a drug is for sale upon request, data, mathematical or
by the agency; or nationally. To assure that a drug is for statistical computations, comparisons,
(2) Providers’ usual and customary sale nationally, CMS will consider the and any other pertinent records to
charges to the general public. following additional criteria: support its findings and assurances.
(c) Certification of brand name drugs. (1) The AMP of a terminated NDC will
(1) The upper limit for payment for not be used to set the Federal upper § 447.520 FFP: Conditions relating to
multiple source drugs for which a limit (FUL) beginning with the first day physician-administered drugs.
specific limit has been established of the month after the actual termination (a) No FFP is available for physician-
under § 447.514 of this subpart does not date reported by the manufacturer to administered drugs for which a State
apply if a physician certifies in his or CMS. has not required the submission of
her own handwriting that a specific (2) Except as set forth in paragraph claims using codes that identify the
brand is medically necessary for a (c)(3) of this section, in establishing the drugs sufficiently for the State to bill a
particular recipient. FUL, the AMP of the lowest priced manufacturer for rebates.
(2) The agency must decide what therapeutically and pharmaceutically (1) As of January 1, 2006, a State must
certification form and procedure are equivalent drug that is not less than 30 require providers to submit claims for
used. percent of the next highest AMP will be single source, physician-administered
(3) A checkoff box on a form is not used to establish the FUL. drugs using Healthcare Common
acceptable but a notation like ‘‘brand (3) When the FUL group includes Procedure Coding System codes or NDC
necessary’’ is allowable. only the innovator single source drug numbers in order to secure rebates.
(4) The agency may allow providers to and the first new generic or authorized (2) As of January 1, 2008, a State must
keep the certification forms if the forms generic drug enters the market, the require providers to submit claims for
will be available for inspection by the criteria in paragraph (c)(2) of this the 20 multiple source physician-
agency or HHS. section will not apply. administered drugs identified by the
Secretary as having the highest dollar (c) A State that requires additional Dated: August 10, 2006.
value under in the Medicaid program time to comply with the requirements of Mark B. McClellan,
using NDC numbers in order to secure this section may apply to the Secretary Administrator, Centers for Medicare &
rebates. for an extension. Medicaid Services.
(b) As of January 1, 2007, a State must (Catalog of Federal Domestic Assistance Approved: October 16, 2006.
require providers to submit claims for Program No. 93.778, Medical Assistance Michael O. Leavitt,
Program) Secretary.
physician-administered single source (Catalog of Federal Domestic Assistance
drugs and the 20 multiple source drugs Program No. 93.773, Medicare—Hospital [FR Doc. 06–9792 Filed 12–15–06; 4:51 pm]
identified by the Secretary using NDC Insurance; and Program No. 93.774, BILLING CODE 4120–01–P
numbers. Medicare—Supplementary Medical
Insurance Program.)

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Proposed Rule: Medicaid: Prescription Drugs

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Friday,

December 22, 2006

42 CFR Part 447

price are reported to CMS. We also savings gained. quarterly basis.

Total .......... 795 1,285 1,840 1,980 2,140 8,040

Section 6002—Rebates on Physician-Administered Federal ............. 18 19 20 22 24 103

Total .......... 31 33 35 38 42 179

Section 6003—Authorized Generics in Rebate Best Federal ............. 10 25 28 32 36 131

Total .......... 17 44 49 56 63 229

Total .......... 843 1,362 1,924 2074 2245 8,448

ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2007 TO CY 2011

ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2007 TO CY 2011—Continued

F. Conclusion care. Section 447.371 implements expenditures for certain physician-

independently by means of chemical those sales that can be identified with

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