Branded Prescription Drug Fee
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Final regulations, temporary regulations, and removal of temporary regulations.
CFR Part: "26 CFR Parts 51 and 602"
RIN Number: "RIN 1545-BJ39"
Citation: "79 FR 43631"
Document Number: "TD 9684"
"Rules and Regulations"
SUMMARY: This document contains final regulations that provide guidance on the annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs. This fee was enacted by section 9008 of the Patient Protection and Affordable Care Act, as amended by section 1404 of the Health Care and Education Reconciliation Act of 2010. This document also withdraws the Branded Prescription Drug Fee temporary regulations and contains new temporary regulations regarding the definition of controlled group that apply beginning on
DATES: Effective Date: These regulations are effective on
Applicability Date: For dates of applicability, see SUBSEC 51.11, 51.11T, and 51.6302-1(b).
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these regulations has been reviewed and approved by the
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.
Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by section 6103 of the Internal Revenue Code.
Background
This document contains final regulations that provide guidance under section 9008 of the Patient Protection and Affordable Care Act, Public Law 111-148 (124
On
On
In response to the proposed regulations, the
All references to section 505 are references to section 505 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 353(b)). Unless otherwise indicated, all other references to subtitles, chapters, subchapters, and sections in this preamble are references to subtitles, chapters, subchapters, and sections in the Code and related regulations. All references to "fee" in the final regulations are references to the fee imposed by section 9008 of the ACA.
Effect on Other Documents
The following publications are obsolete as of
Notice 2010-71, 2010-51 IRB 822, and Notice 2011-9, 2011-6 IRB 459.
Explanation of Provisions and Summary of Comments
Definitions
Manufacturer or Importer
Section 9008(d)(1) defines covered entity as any manufacturer or importer with gross receipts from branded prescription drug sales. Section 9008(e) defines branded prescription drug sales to mean sales of branded prescription drugs to any specified government programs or pursuant to coverage under such programs. These programs are the Medicare Part B program, the
The temporary regulations defined a manufacturer or importer of a branded prescription drug as the person identified in the Labeler Code of the National Drug Code (NDC). The NDC is a unique identifier that is assigned to all drug products approved by the
Commenters asked the
Covered Entity and Adjustment Amount
To be a covered entity, a manufacturer or importer must have gross receipts from branded prescription drug sales. Section 9008(b)(1) requires the
A commenter asserted that, under the temporary regulations, a former covered entity may not be eligible for an adjustment amount if the entity does not have any sales in subsequent years and is, therefore, no longer a covered entity. According to the commenter, if a covered entity owes a fee in 2013 based on 2011 sales, but has no sales in 2012 or later years, then that entity would not qualify as a covered entity in 2014 because the temporary regulations do not provide a mechanism for the entity to receive an adjustment amount for 2013. The commenter suggested that if an adjustment amount results in a net credit to the covered entity's fee, the
For example, assume that an entity had sales in 2011 with no sales in earlier or later years. The entity is a covered entity beginning in 2011. The entity is not liable for a fee in 2011 or 2012 since those fee years are based on 2009 and 2010 sales, respectively. In 2013, the entity is liable for the fee based on its 2011 sales. Furthermore, the entity is liable for the adjustment amount for the difference between the 2012 fee for the entity computed using 2010 sales, which is
In accordance with the statute, the temporary regulations provided that a covered entity includes a controlled group. The temporary regulations defined the term controlled group to mean a group of at least two covered entities that are treated as a single employer under section 52(a), 52(b), 414(m), or 414(o). Under the final regulations, this definition applies through
Designated Entity
The temporary regulations required each controlled group that files a Form 8947, "Report of Branded Prescription Drug Information," to have a designated entity. A designated entity is the person within the controlled group that acts on behalf of the controlled group with regard to the fee. The temporary regulations further provided that if the controlled group, without regard to foreign corporations included under section 9008(d)(2)(B), is also an affiliated group that files a consolidated return for federal income tax purposes, the designated entity is the common parent of the affiliated group identified on the tax return filed for the sales year. If the controlled group is not an affiliated group that files a consolidated return, the temporary regulations allowed the controlled group to select its designated entity. However, if the controlled group did not select a designated entity, the
The final regulations modify the temporary regulations to better coordinate with the consolidated return regulations. Specifically, the final regulations provide that the designated entity of a controlled group, without regard to foreign corporations included under section 9008(d)(2)(B), that is a consolidated group (within the meaning of
The temporary regulations required the designated entity to state under penalties of perjury that all the covered entities that are members of the controlled group have consented to the selection of the designated entity. The final regulations adopt this requirement and further require each member of the controlled group to maintain a record of its consent. The final regulations also require the designated entity to maintain a record of all of the members' consents. Under the final regulations, this consent requirement does not apply to a controlled group that is a consolidated group (within the meaning of
Orphan Drug Sales
Section 9008(e)(3) provides that the term branded prescription drug sales does not include sales of any drug or biological product with respect to which a credit was allowed for any taxable year under section 45C. Section 9008(e)(3) also provides that this exclusion does not apply with respect to any such drug or biological product after the date on which such drug or biological product is approved by the
Commenters requested that the final regulations treat a drug as an orphan drug if the section 45C credit was "allowable"; that is, the section 45C credit could have been claimed, but was not actually claimed. Another commenter requested that the final regulations extend orphan drug treatment to any drug for which the section 45C credit was allowable but for which a research tax credit under section 41 was claimed with respect to a taxable year ending on or before
FOOTNOTE 1 Likewise, under section 1250(b)(3), if a taxpayer can establish that the amount "allowed" as a deduction was less than the amount "allowable," then the amount taken into account for purposes of a depreciation adjustment is the amount "allowed." See also section 36B(c)(1)(D) and section 42(j)(5)(A)(i). END FOOTNOTE
FOOTNOTE 2
Commenters also requested that orphan drug status be given to a drug for which a section 45C credit was allowed, even though the drug had been subsequently approved by the
Pre-1984 Generic Drugs
Section 9008(e)(2)(A) defines the term branded prescription drug to include any prescription drug the application for which was submitted to the
On
It has come to our attention that, before the 1984 Act, an applicant submitted an application for approval of any prescription drug under section 505(b), and no separate statutory process existed for approval of a generic drug.
Comments with regard to this issue should be submitted in writing and can be mailed to the
Information Requested From Covered Entities
The temporary regulations gave each covered entity the opportunity to provide information relevant to the determination of the fee by annually submitting Form 8947, including information regarding rebates. Commenters asked that CMS include all rebate data in its reports to the
A commenter asked whether to include state-only pharmaceutical program rebates on Form 8947 as Medicaid Drug Rebates. According to CMS, state-only pharmaceutical programs are not part of the Medicaid Drug Rebate Program or the federal
A commenter asked that the final regulations provide that a covered entity may submit an incomplete Form 8947. The final regulations do not adopt this suggestion. Submission of Form 8947 is voluntary. A covered entity that chooses to file Form 8947, however, must state, under penalties of perjury, that to the best of the filer's knowledge and belief, the information provided on Form 8947 is true, correct, and complete. As in the past, a covered entity may correct and supplement information it submitted on Form 8947, if necessary, by submitting one or more error reports as part of the dispute resolution process.
Information Provided by the Agencies
Section 9008(g) requires each Program to calculate and provide sales data based on the methodologies described in section 9008(g). Section 9008(b)(3) requires the
Commenters raised questions about the descriptions in the temporary regulations of the methodologies used by the Agencies, asked that these descriptions be clarified, suggested alternative methods of calculating Program sales data, and requested additional data. In response to these comments, the final regulations adopt certain suggestions to include revised descriptions of the data and computations the Agencies use to calculate branded prescription drug sales as described in the following sections for each Program. In addition, this preamble provides further background on the methodologies used by the Agencies as described in the following sections for each Program. Because the Agencies have the responsibility to compute and report the data described in the statute, the
The temporary regulations provided that, to determine branded prescription drug sales amounts for
Commenters asked that the final regulations clarify how CMS determines these net sales amounts. The final regulations adopt this suggestion. The final regulations clarify that CMS will aggregate the "Ingredient Cost Paid" field on the PDE records at the NDC level, reduced by discounts, rebates, and other price concessions provided by the covered entity. To obtain this information, CMS uses two main data sources to determine net sales amounts: the PDE records and the Detailed Direct and Indirect Remuneration (DIR) Report. CMS obtains information for these two data sources from
The final regulations specifically define "discounts, rebates, and other price concessions provided by the covered entity" to include, in part, DIR. DIR is any and all rebates, subsidies, or other price concessions from any source (including manufacturers, pharmacies, enrollees, or any other person) that serve to decrease the costs incurred by the
The final regulations further provide that DIR includes both DIR reported on the PDE records at the point of sale and DIR reported on the Detailed DIR Report. The temporary regulations provided that, if CMS does not have
A commenter requested that the final regulations clarify the treatment of coverage gap discount amounts. The final regulations adopt this suggestion effective for fee years beginning in 2014. The
The final regulations also remove the reference to the "Quantity Dispensed" field of the PDE records. This field has no impact on sales because CMS totals the ingredient cost at the NDC level and determines DIR reported on the PDE records at the point of sale and DIR reported on the Detailed DIR Report at the NDC level. Thus, the unit of reference used by CMS is consistently at the NDC level.
Commenters suggested that the final regulations require CMS to exclude sales in
Medicare Part B
The temporary regulations provided that CMS will determine branded prescription drug sales under Medicare Part B using two data sources. First, CMS will use the data reported by manufacturers pursuant to section 1847A(c) of the Social Security Act (42 U.S.C. 1395w-3a(c)) to calculate the annual weighted average sales price (ASP) for each Healthcare Common Procedure Coding System code (HCPCS code) for the sales year. Second, CMS will use the Medicare Part B National Summary Data File located at http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/NonIdentifiableDataFiles/PartBNationalSummaryDataFile.html to obtain the number of allowed billing units per HCPCS code for claims incurred during the sales year. The temporary regulations further provided separate detailed methods for CMS to use this data to determine Medicare Part B sales amounts depending on whether (1) the HCPCS code consists solely and exclusively of branded prescription drugs manufactured by a single entity, (2) the HCPCS code consists of a mixture of branded prescription drugs made by different manufacturers and/or a mixture of branded prescription and generic drugs, or (3) CMS is unable to establish a reliable proportion of sales attributable to each NDC assigned to the HCPCS code.
Under the third method in the temporary regulations, if CMS is unable to establish a reliable proportion of sales attributable to each NDC assigned to the HCPCS code, CMS will calculate Medicare Part B sales by using
Commenters also expressed concern about whether Medicare Part B is capturing complete data on what are sometimes referred to as non-separately payable drugs. Non-separately payable drugs may not be directly correlated with a single specific HCPCS code. Some non-separately payable drugs are associated with more than one HCPCS code or are bundled with services, such as dialysis. CMS recognizes this concern and makes extensive effort to gather as complete a data set as possible. CMS will continue to work with the data available to capture non-separately payable drugs.
The temporary regulations provided that CMS will determine branded prescription drug sales as the per-unit Average Manufacturer Price (AMP) less the Unit Rebate Amount (URA) that CMS calculates based on manufacturer-reported pricing data multiplied by the number of units reported billed by the states to manufacturers. Specifically, the temporary regulations provided that for any covered entity identified in the first five (or six) digits of an NDC during any of the four quarters of a sales year, CMS uses the following methodology to derive the branded prescription sales amounts that account for third-party payers:
Step 1. Report total dollars per NDC for AMP minus URA, multiplied by the units reported by a state or states;
Step 2. Determine the percentage of the total amount reimbursed that is the
Step 3. Multiply the percentage of the
The final regulations clarify that CMS will determine branded prescription drug sales as the per-unit AMP less the URA that CMS calculates based on manufacturer-reported pricing data multiplied by the number of units reported as paid by the states rather than as billed by the states.
Commenters requested that the final regulations require
The temporary regulations provided that
Commenters requested that the final regulations clarify the meaning of the phrase "drugs paid for by the states in the Medicaid Drug Rebate Program" and whether it includes units paid for under managed care organization plans. In response to this request, the final regulations specify that "drugs paid for by the states in the Medicaid Drug Rebate Program" includes all branded prescription drug units for which the states bill rebates to covered entities under the Medicaid Drug Rebate Program. This program includes, but is not limited to, units paid for under various health care plans such as fee for service, managed care organizations, and drugs administered in a non-retail setting such as drugs administered in a physician's office, clinic, hospital or other setting. Under the Medicaid Drug Rebate Program, states provide the required utilization data. States report separate totals for each NDC for both fee-for-service and managed care organization utilization data. Also, as stated earlier in this preamble, the final regulations specify that the Medicaid Drug Rebate Program's calculated branded prescription drug fee does not include state-only pharmaceutical program sales or rebates.
Commenters asked how a covered entity can ensure that a state has updated its
The temporary regulations provided that VA will provide, by NDC, the total amount paid (net of refunds and rebates, when they are associated with a specific NDC) for each branded prescription drug procured by VA for its beneficiaries during the sales year. For this purpose, a drug is procured on the invoice (billing) date. The temporary regulations further provided that the basis of this information will be national procurement data reported during the sales year by VA's Pharmaceutical Prime Vendor to the VA Pharmacy Benefits Management Service and National Acquisition Center.
A commenter requested that the final regulations require that the amount of the IFF and CRF be excluded from VA sales either by requiring VA to exclude these amounts from its sales data or by allowing a covered entity to report these amounts on its Form 8947. The final regulations do not adopt this suggestion. According to VA, these amounts are part of the total price VA pays to its Pharmaceutical Prime Vendor and are properly included in the sales amount.
A commenter requested that the final regulations confirm that VA sales data does not include
The temporary regulations provided that, for
A commenter requested that the final regulations require that the amount of the Industrial Funding Fee (IFF) and the Cost Recovery Fee (CRF) be excluded from
The temporary regulations provided that
Commenters expressed concern that
Section 51.4T(f) described the
Fee Calculation Including Adjustment
As stated earlier in this preamble, because the use of the second preceding year as the sales year, rather than the immediately preceding year, may affect the amount of the fee paid by a covered entity, the temporary regulations provided that the annual fee due in every year after 2011 will include an adjustment amount. This adjustment amount will be added (or subtracted), as appropriate, to (or from) the fee otherwise payable by the covered entity in the fee year in which the adjustment is calculated.
A commenter asked that the final regulations provide for a separate dispute resolution process for the adjustment amount after the final fee calculation because errors reported in the dispute resolution process may not be resolved in time to be reflected in the final fee calculation. The final regulations do not adopt this suggestion. The adjustment amount is part of the preliminary fee calculation. Therefore, each covered entity has an opportunity to raise disputes regarding the adjustment amount during the existing dispute resolution process. Moreover, an adjustment to one covered entity's final fee calculation would necessitate a recalculation of each covered entity's prior final fee calculation because the fee is an allocated fee. The final regulations clarify that the
Because the amount of the fee under the temporary regulations was based on sales from the second preceding year, commenters suggested that the final regulations allow a covered entity to reduce its fee liability in the same year that the covered entity experiences an event that would significantly reduce its sales to the Programs and make corresponding adjustments in future years. Such events may include a drug recall, a loss of patent exclusivity, or bankruptcy. The final regulations do not adopt this suggestion. The statute requires the
In accordance with section 9008(f)(1), the temporary regulations treated the fee as an excise tax for purposes of subtitle F. A commenter suggested that the final regulations provide for interest payments for adjustment amounts that are credited to a covered entity. The final regulations do not adopt this suggestion. Instead, the final regulations clarify that an adjustment amount itself is neither an overpayment nor an underpayment, but rather a component of the current year's fee. Thus, for purposes of section 6601, any increase in the current year's fee resulting from any adjustment amount, along with the remainder of the fee, is treated as due on the due date for the current year's fee. Conversely, for purposes of section 6611, any adjustment amount that decreases the current year's fee is treated as a payment towards the current fee amount made on the due date of the current fee year.
Commenters asked that the final regulations clarify whether a covered entity must file Form 843, "Claim for Refund and Request for Abatement," to request that the
Another commenter suggested that the final regulations clarify whether the period of limitations on filing a claim set forth in section 6511 applies to the adjustment amount. Under the final regulations, section 6511 applies to the fee, but not separately to the adjustment amount, because the adjustment amount is merely a component of the fee. For purposes of section 6511, any adjustment amount that decreases the current year's fee is treated as a payment towards the current fee amount made on the due date of the current fee year.
Notification and Payment of Fee
The temporary regulations provided that, no later than
In accordance with section 9008(a)(2), the temporary regulations provided that each covered entity must pay its final fee by
Dispute Resolution Process
The temporary regulations provided for a dispute resolution process that allows a covered entity to submit error reports in response to the preliminary fee calculation for the
The temporary regulations required that a Form 2848, "Power of Attorney and Declaration of Representative" must be filed with an error report. The final regulations clarify that a Form 2848 is required only when the representative is not an employee of the covered entity who is authorized under section 6103 or designated on Form 8947 to discuss the information reported on Form 8947.
The temporary regulations required the name, telephone number, and email address (if available) of one or more employees or representatives with whom errors may be discussed. The final regulations also require a fax number.
For Program errors, the temporary regulations required a covered entity to submit a separate error report for each Program with the asserted errors. For non-Program errors, the temporary regulations required a covered entity to submit one error report with all of the non-Program errors. To streamline the error reporting process, the final regulations require a covered entity to combine both Program and non-Program errors on a single error report, with each asserted error on a separate line.
Availability of
The IRS notices, the revenue procedure, and the temporary regulations cited in this preamble are published in the Internal Revenue Bulletin and are available at www.irs.gov. The temporary regulations are also available in the Code of Federal Regulations.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the only collection burden imposed by these regulations is the requirement to maintain a record of consent to the selection of a designated entity, and this collection burden applies only to designated entities of controlled groups, which tend to be large corporations, and their members. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f), the notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the
Drafting Information
The principal author of these regulations is
List of Subjects
26 CFR Part 51
Drugs, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 51 and 602 are amended as follows:
PART 51--BRANDED PRESCRIPTION DRUG FEE
Paragraph 1. The authority citation for part 51 continues to read as follows:
Authority: 26 U.S.C. 7805; sec. 9008, Public Law 111-347 (124
Section 51.8 also issued under 26 U.S.C. 6302(a).
Section 51.6302-1 also issued under 26 U.S.C. 6302(a).
Par. 2. Section 51.1 is added to read as follows:
(a) The regulations in this part 51 are designated "Branded Prescription Drug Fee Regulations."
(b) The regulations in this part 51 provide guidance on the annual fee imposed on covered entities engaged in the business of manufacturing or importing branded prescription drugs by section 9008 of the Patient Protection and Affordable Care Act (ACA), Public Law 111-148 (124
(c) Section 9008(b)(4) sets an applicable fee amount for each year, beginning with 2011, that will be apportioned among covered entities with aggregate branded prescription drug sales of over
Par. 3. Section 51.1T is removed.
Par. 4. Section 51.2T is revised to read as follows:
(a) Through (e)(2) [Reserved]. For further guidance see
(3)
(e)(4) through (m) [Reserved]. For further guidance see
Par. 5. Section 51.2 is added to read as follows:
(a) In general. This section explains the terms used in this part for purposes of the fee imposed by section 9008 on branded prescription drugs.
(b) Agencies. The term Agencies means--
(1) The
(2) The
(3) The
(c) Branded prescription drug --(1) In general. The term branded prescription drug means--
(i) Any prescription drug the application for which was submitted under section 505(b) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)) (FFDCA); or
(ii) Any biological product the license for which was submitted under section 351(a) of the Public Health Service Act (42 U.S.C. 262(a)).
(2) Prescription drug. The term prescription drug means any drug that is subject to section 503(b) of the FFDCA.
(d) Branded prescription drug sales. The term branded prescription drug sales means sales of branded prescription drugs to any government program or pursuant to coverage under any such government program. However, the term does not include sales of orphan drugs.
(e) Covered entity --(1) In general. The term covered entity means any manufacturer or importer with gross receipts from branded prescription drug sales including--
(i) A single-person covered entity; or
(ii) A controlled group.
(2) Single-person covered entity. The term single-person covered entity means a covered entity that is not affiliated with a controlled group.
(3) Controlled group -- (i) On or before
(ii) After
(4) Special rules for controlled groups. For purposes of paragraph (e)(3) of this section (related to controlled groups)--
(i) A foreign entity subject to tax under section 881 is included within a group under section 52(a) or 52(b); and
(ii) A person is treated as being a member of a controlled group if it is a member of the group on the end of the day on
(5) Covered entity status --(i) Rule. An entity's status as a covered entity begins in the first fee year in which the entity has branded prescription drug sales and continues each subsequent fee year until there are no remaining branded prescription drug sales for that entity to be taken into account as described in
(ii)
Example.
The following example illustrates the rule of paragraph (e)(5)(i) of this section:
(A) Facts. Entity A is a manufacturer with gross receipts of more than
(B) Analysis. Entity A is a covered entity beginning in 2011 because it had gross receipts from branded prescription drug sales in 2011. For the 2011 fee year, Entity A does not owe a fee because the 2011 fee is based on sales data from the 2009 sales year. For the 2012 fee year, Entity A does not owe a fee because the 2012 fee is based on sales data from the 2010 sales year. Entity A continues to be a covered entity for the 2012 fee year because its branded prescription drug sales from the 2011 sales year have not yet been taken into account as described in
(f) Designated entity --(1) In general. The term designated entity means the person within a controlled group that is designated to act for the controlled group regarding the fee by--
(i) Filing Form 8947, "Report of Branded Prescription Drug Information";
(ii)
(iii) Filing an error report for the group, if applicable, as described in
(iv) Paying the fee to the government.
(2) Selection of designated entity --(i) Controlled group selection of a designated entity. Except as provided in paragraph (f)(2)(ii) of this section, the controlled group may select a person as the designated entity by filing Form 8947 in accordance with the form instructions. The designated entity must state under penalties of perjury that all members of the controlled group have consented to the selection of the designated entity. The designated entity must maintain a record of all member consents. Each member of a controlled group must maintain a record of its consent to the controlled group's selection of the designated entity.
(ii) Requirement for affiliated groups; agent for the group. If the controlled group, without regard to foreign corporations included under section 9008(d)(2)(B), is also an affiliated group whose common parent files a consolidated return for federal income tax purposes, the designated entity is the agent for the group (within the meaning of
(iii)
(g) Fee year. The term fee year means the calendar year in which the fee for a particular sales year must be paid to the government.
(h) Government programs. The term government programs (collectively "Programs"), means--
(1) The Medicare Part B program;
(2) The
(3) The
(4) Any program under which branded prescription drugs are procured by the
(5) Any program under which branded prescription drugs are procured by the
(6) The
(i) Manufacturer or importer. The term manufacturer or importer means the person identified in the Labeler Code of the National Drug Code (NDC) for a branded prescription drug.
(j) NDC. The term NDC means the National Drug Code. The NDC is a unique identifier that is assigned to all drug products approved by the
(k) Orphan drugs --(1) In general. Except as provided in paragraph (k)(2) of this section, the term orphan drug means any branded prescription drug for which any person claimed a section 45C credit and that credit was allowed for any taxable year.
(2) Exclusions. The term orphan drug does not include--
(i) Any drug for which there has been a final assessment or court order disallowing the full section 45C credit taken for the drug; or
(ii) Any drug for any sales year after the calendar year in which the
(3)
(4) Examples. The following examples illustrate the rules of this paragraph (k):
Example 1:
Allowance of section 45C credit and later
(ii) Analysis. In 2011 and 2012, Drug A is an orphan drug because: first, it was a branded prescription drug for which a person claimed a section 45C credit and for which that credit was allowed for a taxable year; second, there was not a final assessment or court order disallowing the full credit taken for the drug; and third, before 2012, the
Example 2:
FDA marketing approval of drug for an indication other than the treatment of a rare disease or condition and later allowance of section 45C credit. (i) Facts. Drug B is a branded prescription drug that was not on the market before 2011. In 2011,
(ii) Analysis. In 2011, Drug B is not an orphan drug because no section 45C credit was allowed and because the
Example 3:
Allowance of section 45C credit and subsequent allowance of section 45C credit with no intervening
(ii) Analysis. In 2010 and 2011, Drug C is an orphan drug because: first, it was a branded prescription drug for which a person claimed a section 45C credit and for which that credit was allowed for a taxable year; second, there was not a final assessment or court order disallowing the full credit taken for the drug; and third,
(l) Sales taken into account. The term sales taken into account means branded prescription drug sales after application of the percentage adjustment table in section 9008(b)(2) (relating to annual sales less than
(m) Sales year. The term sales year means the second calendar year preceding the fee year. Thus, for example, for the fee year of 2014, the sales year is 2012.
Par. 6. Section 51.3 is added to read as follows:
(a) In general. Annually, each covered entity may submit a completed Form 8947, "Report of Branded Prescription Drug Information," in accordance with the instructions for the form. Generally, the form solicits information from covered entities on NDCs, orphan drugs, designated entities, rebates, and other information specified by the form or its instructions.
(b) Due date. Form 8947 must be filed by the date prescribed in guidance in the Internal Revenue Bulletin.
Par. 7. Section 51.3T is removed.
Par. 8. Section 51.4 is added to read as follows:
(a) In general. For each sales year, the
(b)
(2) Discounts, rebates, and other price concessions --(i) In general. For purposes of paragraph (b)(1) of this section, the term discounts, rebates, and other price concessions means:
(A) Any direct and indirect remuneration (DIR) (within the meaning of paragraph (b)(2)(B) of this section), which includes any DIR reported on the PDE records at the point of sale and any DIR reported on a Detailed DIR Report (within the meaning of paragraph (b)(2)(C) of this section); and
(B) Any coverage gap discount amount (within the meaning of paragraph (b)(2)(D) of this section).
(ii) Direct and indirect remuneration. For purposes of paragraph (b)(2)(A)(i) of this section, the term direct and indirect remuneration (DIR) has the same meaning as found in the definition of actually paid in 42 CFR 423.308.
(iii) Detailed DIR Report. For purposes of paragraph (b)(2)(A)(i) of this section, the term Detailed DIR Report means the report containing any DIR (within the meaning of paragraph (b)(2)(B) of this section) that is collected yearly from Part D sponsors at the NDC level.
(iv) Coverage gap discount amount. For purposes of paragraph (b)(2)(A)(ii) of this section, the term coverage gap discount amount means a 50-percent manufacturer-paid discount on certain drugs under the Coverage Gap Discount Program described in section 1860D-14A of the Social Security Act.
(c) Medicare Part B --(1) In general. CMS will determine branded prescription drug sales under Medicare Part B using the following two data sources:
(i) CMS will use data reported by manufacturers pursuant to section 1847A(c) of the Social Security Act to calculate the annual weighted average sales price (ASP) for each Healthcare Common Procedure Coding System (HCPCS) code for the sales year.
(ii) CMS will use the Medicare Part B National Summary Data File located at http://www.cms.gov/NonIdentifiableDataFiles/03_PartBNationalSummaryDataFile.asp to obtain the number of allowed billing units per HCPCS code for claims incurred during the sales year.
(2) Calculation --(i) In general. Using the data described in paragraph (c)(1) of this section, CMS will determine branded prescription drugs sales under Medicare Part B as described in paragraphs (c)(3), (4), and (5) of this section. CMS reports sales amounts per HCPCS billing code, not per NDC. Therefore, a covered entity's total Part B sales amounts for all NDCs in a given HCPCS billing code appears under only one NDC in each HCPCS billing code and the covered entity's remaining NDCs in the HCPCS billing code are listed with a sales amount of zero.
(ii) Example of a Part B sales report:
HCPCS NDC Part B amount J9876 12345-6789-01$789,000 12345-6789-02 0 12345-6789-03 0 12345-6800-80 0 12345-6800-90 0
(3) HCPCS code; single entity. For each HCPCS code consisting solely and exclusively of branded prescription drugs (as identified by their respective NDCs) manufactured by a single entity, CMS will multiply the annual weighted ASP by the total number of allowed billing units paid during the sales year to determine the total sales for all NDCs associated with the HCPCS code attributed to Medicare Part B.
(4) HCPCS code; multiple manufacturers and/or multiple drugs --(i) Step one. For each HCPCS code consisting of a mixture of branded prescription drugs made by different manufacturers and/or a mixture of branded prescription and generic drugs, CMS will determine--
(A) The annual weighted ASP for the HCPCS code;
(B) The total number of allowed billing units paid by Medicare Part B for each HCPCS code during the sales year;
(C) The names of the entities engaged in manufacturing each NDC assigned to the HCPCS code; and
(D) Those entities (if any) identified in paragraph (c)(4)(C) of this section that are manufacturing branded prescription drugs assigned to the HCPCS code.
(ii) Step two. Using the information from paragraph (c)(4)(i) of this section, CMS will then do the following:
(A) Calculate the proportion of sales, expressed as a percentage, attributed to each NDC assigned to the HCPCS code by determining the percentage of total sales reported to CMS by each manufacturer of NDC(s) that are assigned to the HCPCS code. For example, if HCPCS code JXXXX contains three drugs with a total of
(B) For each NDC, multiply the product of the annual weighted ASP and the total allowed billing units paid by Medicare Part B for the HCPCS code by the proportion of sales calculated in paragraph (c)(4)(ii)(A) of this section to determine the sales reportable to the
(5) HCPCS code; unable to establish a reliable proportion of sales. If CMS is unable to establish a reliable proportion of sales attributable to each NDC assigned to the HCPCS code using the method described in paragraph (c)(4)(ii)(A) of this section, CMS will use
(d)
(2) For any covered entity identified in the first five (or six) digits of an NDC during any of the four quarters of a sales year, CMS will use the following methodology to derive the sales figures that account for third-party payers, such as Medicare Part B:
(i) Report total dollars per NDC for AMP minus URA multiplied by the units reported by a state or states.
(ii) Determine the percentage of the total amount reimbursed that is the
(iii) Multiply the percentage of the
(e)
(f)
(g)
Par. 9. Section 51.4T is removed.
Par. 10. Section 51.5 is added to read as follows:
(a) Fee components --(1) In general. For every fee year, the
(2) Calculation of branded prescription drug sales. Each covered entity's allocated fee for any fee year is equal to an amount that bears the same ratio to the applicable amount as the covered entity's branded prescription drug sales taken into account during the sales year bears to the aggregate branded prescription drug sales of all covered entities taken into account during the sales year.
(3) Applicable amount. The applicable amounts for fee years are--
Fee year Applicable amount 2011$2,500,000,000 2012 2,800,000,000 2013 2,800,000,000 2014 3,000,000,000 2015 3,000,000,000 2016 3,000,000,000 2017 4,000,000,000 2018 4,100,000,000 2019 and thereafter 2,800,000,000
(4) Sales taken into account. A covered entity's branded prescription drug sales taken into account during any calendar year are as follows:
Covered entity's branded prescription Percentage of branded prescription drug sales during the calendar year drug sales taken into account is: that are: Not more than$5,000,000 0 More than$5,000,000 but not more 10 than$125,000,000 More than$125,000,000 but not more 40 than$225,000,000 More than$225,000,000 but not more 75 than$400,000,000 More than$400,000,000 100
(b) Determination of branded prescription drug sales. The
(c) Determination of sales taken into account. (1) For each sales year and for each covered entity, the
(2) For each sales year, the
(d) Allocated fee calculation. For each covered entity for each fee year, the
(1) The numerator of which is the covered entity's branded prescription drug sales taken into account during the sales year (described in paragraph (c)(1) of this section); and
(2) The denominator of which is the aggregate branded prescription drug sales taken into account for all covered entities during the same year (described in paragraph (c)(2) of this section).
(e) Adjustment amount --(1) In general. In addition to the allocated fee computed under paragraph (d) of this section, the
(2) Amounts paid to a covered entity because of an adjustment amount. If a covered entity's adjustment amount reduces the fee computed under paragraph (d) of this section below zero and results in an amount due to the covered entity for the fee year, the
Par. 11. Section 51.5T is removed.
Par. 12. Section 51.6 is added to read as follows:
(a) Content of notice. For each sales year, the
(1) The covered entity's allocated fee;
(2) The covered entity's branded prescription drug sales, by NDC, by Program;
(3) The covered entity's branded prescription drug sales taken into account after application of
(4) The aggregate branded prescription drug sales taken into account for all covered entities;
(5) The covered entity's adjustment amount calculated as described in
(6) A reference to the fee dispute resolution procedures set forth in guidance published in the Internal Revenue Bulletin.
(b) Time of notice. The
Par. 13. Section 51.6T is removed.
Par. 14. Section 51.7 is added to read as follows:
(a) In general. Upon receipt of its preliminary fee calculation, each covered entity will have an opportunity to dispute this calculation by submitting to the
(b) Error report information. To assert that there have been one or more errors in the drug sales data reported by a Program, the mathematical calculation of the fee, the rebate data, the listing of an NDC for an orphan drug, or any other error, a covered entity must submit an error report with each asserted error reported on a separate line. The report must include the following information--
(1) Entity name, address, and Employer Identification Number (EIN) as previously reported on the Form 8947;
(2) The name, telephone number, fax number, and email address (if available) of one or more employees or representatives of the entity with whom the
(3) For an error in the drug sales data reported by a Program, the name of the Program that reported the data, the NDC, the specific amount of sales data disputed, the proposed corrected amount, an explanation of why the Agency should use the proposed corrected data instead, and documentation of any Program drug sales data or other information used to establish the existence of any errors.
(4) For a mathematical calculation error, the specific calculation element(s) that the entity disputes and its proposed corrected calculation;
(5) For a rebate data error, the NDC for the drug to which it relates; a discussion of whether the data used in the preliminary fee calculation matches previously reported Form 8947 data on rebates; and, if the data used in the preliminary fee calculation does match the Form 8947 data, an explanation of why the Form 8947 data was erroneous and why the
(6) For the listing of an NDC for an orphan drug, the name and NDC of the orphan drug; a discussion of whether the data used in the preliminary fee calculation matches previously reported Form 8947 data on orphan drugs; and, if the data used in the preliminary fee calculation does match the Form 8947 data, an explanation of why the Form 8947 data was erroneous and why the
(7) For any other asserted error, an explanation of the nature of the error, how the error affects the fee calculation, an explanation of how the entity established that an error occurred, the proposed correction to the error, and an explanation of why the
(8) If an entity is using data to establish the existence of an error and that data was not reported on Form 8947 or contained in the notification of the preliminary fee calculation, a description of what the data is, how the entity acquired the data, and who maintains it; and
(9) Documentation of any rebate and orphan drug data, or other information used to establish the existence of any errors.
(c) Form, manner, and timing of submission. Each covered entity must submit its error report(s) in the form and manner that is prescribed in guidance published in the Internal Revenue Bulletin. This guidance will also prescribe the date by which each covered entity must submit its report(s).
(d) Finality. A covered entity must assert any basis for contesting its preliminary fee calculation during the dispute resolution period. In the interest of providing finality to the fee calculation process, the
Par. 15. Section 51.7T is removed.
Par. 16. Section 51.8 is added to read as follows:
(a) Notification of final fee calculation. No later than
(1) The covered entity's allocated fee;
(2) The covered entity's adjustment amount calculated as described in
(3) The covered entity's branded prescription drug sales, by NDC, by Program;
(4) The covered entity's branded prescription drug sales taken into account after application of
(5) The aggregate branded prescription drug sales taken into account for all covered entities; and
(6) The final determination with respect to error reports.
(b) Differences in preliminary fee calculation and final fee calculation. A covered entity's final fee calculation may differ from the covered entity's preliminary fee calculation because of changes made pursuant to the dispute resolution process described in
(c) Payment of final fee. Each covered entity must pay its final fee by
(d) Joint and several liability. In the case of a controlled group that is liable for the fee, all members of the controlled group are jointly and severally liable for the fee. Accordingly, if a controlled group's fee is not paid, the
Par. 17. Section 51.8T is removed.
Par. 18. Section 51.9 is added to read as follows:
(a) Treatment as an excise tax. The fee imposed by section 9008 is treated as an excise tax for purposes of subtitle F of the Internal Revenue Code (Code) (sections 6001-7874). Thus, references in subtitle F to "taxes imposed by this title," "internal revenue tax," and similar references, are also references to the fee imposed by section 9008. For example, the fee imposed by section 9008 is assessed (section 6201), collected (sections 6301, 6321, and 6331), enforced (section 7402 and 7403), subject to examination and summons (section 7602), and subject to confidentiality rules (section 6103) in the same manner as taxes imposed by the Code.
(b) Deficiency procedures. The deficiency procedures of sections 6211-6216 do not apply to the fee imposed by section 9008.
(c) Limitation on assessment. The
(d) Application of section 275. The fee is treated as a tax described in section 275(a)(6) (relating to taxes for which no deduction is allowed).
Par. 19. Section 51.9T is removed.
Par. 20. Section 51.10 is added to read as follows:
Any claim for a refund of the fee must be made by the person that paid the fee to the government and must be made on Form 843, "Claim for Refund and Request for Abatement," in accordance with the instructions for that form.
Par. 21. Section 51.10T is removed.
Par. 22. Section 51.11T is revised to read as follows:
(a) through (b) [Reserved]. For further guidance see
(c) Section 51.2T(e)(3) applies to any fee on branded prescription drug sales that is due on or after
(d) The applicability of
Par. 23. Section 51.11 is added to read as follows:
(a) Except as otherwise provided in this section, SUBSEC 51.1 through 51.10 apply on and after
(b) Section 51.2(e)(3) applies on
(c) [Reserved]. For further guidance see
Par. 24. Section 51.12T is removed.
Par. 25. Section 51.6302-1 is added to read as follows:
(a) Fee to be paid by electronic funds transfer. Under the authority of section 6302(a), the fee imposed on branded prescription drug sales by section 9008 and
(b) Effective/applicability date. This section applies on and after
Par. 26. Section 51.6302-1T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 27. The authority citation for part 602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 28. In
1. Removing the entry for 51.8T from the table; and
2. Adding entries, in numerical order, for 51.2(f)(2)(ii) and 51.7 to the table to read as follows:
* * * * *</p>
(b) * * *
CFR part or section where identified and described Current OMB Control No. * * * * * * * 51.2(f)(2)(ii) 1545-2209 51.7 1545-2209 * * * * * * *
Deputy Commissioner for Services and Enforcement.
Approved:
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-17697 Filed 7-24-14;
BILLING CODE 4830-01-P
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