Medicaid Program; Covered Outpatient Drugs

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Federal Register › Vol. 77 › 77 FR 5318

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DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Part 447 [CMS-2345-P] RIN 0938-AQ41 Medicaid Program; Covered Outpatient Drugs AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would revise requirements pertaining to Medicaid reimbursement for covered outpatient drugs to implement provisions of the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively known as the Affordable Care Act). This proposed rule would also revise other requirements related to covered outpatient drugs, including key aspects of Medicaid coverage, payment, and the drug rebate program. Therefore, we are proposing to amend 42 CFR part 447, subpart I to implement specific provisions of the Affordable Care Act.

DATES:

To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on April 2, 2012.

ADDRESSES:

In commenting, please refer to file code CMS-2345-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

You may submit comments in one of four ways (please choose only one of the ways listed):

1. Electronically. You may submit electronic comments on this regulation to http://www.regulations.gov. Follow the instructions under the “More Search Options” tab.

2. By regular mail. You may mail written comments to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2345-P, P.O. Box 8016, Baltimore, MD 21244-8016. Please allow sufficient time for mailed comments to be received before the close of the comment period.

3. By express or overnight mail

the “More Search Options” tab.

2. By regular mail. You may mail written comments to the following address ONLY:

3. By express or overnight mail. You may send written comments to the following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-2345-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier. If you prefer, you may deliver (by hand or courier) your written comments before the close of the comment period to either of the following addresses:

a. For delivery in Washington, DC—

Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201. (Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters must leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed. The comments delivered must also be stamped in to verify timeliness of submission.)

b. For delivery in Baltimore, MD—

Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and if received after the comment period closes may not be considered

7500 Security Boulevard, Baltimore, MD 21244-1850. If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.

Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and if received after the comment period closes may not be considered.

Submission of comments on paperwork requirements. You may submit comments on this document's paperwork requirements by following the instructions at the end of the “Collection of Information Requirements” section in this document.

For information on viewing public comments, see the beginning of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Angel Davis, (410) 786-4693, and Meagan Khau, (410) 786-1357, for issues related to rebates for line extensions. Lisa Ferrandi, (410) 786-5445, for issues related to the Collection of Information Requirements. Joseph Fine, (410) 786-2128, for issues related to the determination of Best Price, definition of covered outpatient drug and rebates for drugs dispensed by Medicaid managed care organizations. Christine Hinds, (410) 786-4578, Kimberly Howell, (410) 786-6762, Terry Simananda, (410) 786-8144, or Wendy Tuttle, (410) 786-8690, for issues related to the determination of Average Manufacturer Price (AMP). Meagan Khau, (410) 786-1357, for issues related to the offset of rebates. Madlyn Kruh, (410) 786-3239, for issues related to authorized generics, nominal price, investigational drugs, and the coverage of tobacco cessation drugs under the Medicaid State Plan. Bernadette Leeds, (410) 786-9463, for issues related to drug rebates. Gail Sexton, (410) 786-4583, for issues related to Federal upper limits. Marge Watchorn, (410) 786-4361, for issues related to the Regulatory Impact Analysis. Wendy Tuttle, (410) 786-8690, for all other inquiries

ics, nominal price, investigational drugs, and the coverage of tobacco cessation drugs under the Medicaid State Plan. Bernadette Leeds, (410) 786-9463, for issues related to drug rebates. Gail Sexton, (410) 786-4583, for issues related to Federal upper limits. Marge Watchorn, (410) 786-4361, for issues related to the Regulatory Impact Analysis. Wendy Tuttle, (410) 786-8690, for all other inquiries.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to view public comments.

Comments received timely will also be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-(800) 743-3951.

I. Background

A. Introduction

Under the Medicaid program, States may provide coverage of outpatient drugs as an optional service under section 1905(a)(12) of the Social Security Act (the Act). Section 1903(a) of the Act provides for Federal financial participation (FFP) in State expenditures for these drugs. In general, in order for payment to be made available under section 1903 for covered outpatient drugs, manufacturers must enter into a Medicaid drug rebate agreement as set forth in section 1927(a)

This proposed rule would implement changes to section 1927 of the Act made by sections 2501, 2503, and 3301(d)(2) of the Patient Protection and Affordable Care Act of 2010 (Pub. L

res for these drugs. In general, in order for payment to be made available under section 1903 for covered outpatient drugs, manufacturers must enter into a Medicaid drug rebate agreement as set forth in section 1927(a)

This proposed rule would implement changes to section 1927 of the Act made by sections 2501, 2503, and 3301(d)(2) of the Patient Protection and Affordable Care Act of 2010 (Pub. L. 111-148, enacted on March 23, 2010), and sections 1101(c) and 1206 of the Health Care and Education Reconciliation Act of 2010 (HCERA) (Pub. L. 111-152, enacted on March 30, 2010), (collectively known as the Affordable Care Act). It would also implement changes to section 1927 of the Act as set forth in section 202 of Pub. L. 111-226, enacted on August 10, 2010 (referred to as the Education Jobs and Medicaid Funding Act). This proposed rule would implement other miscellaneous provisions pertaining to covered outpatient drugs. It would implement changes to section 1927 of the Act as set forth in section 221 of Division F, Title II, of the Omnibus Appropriations Act, 2009, (Pub. L. 111-8, enacted on March 11, 2009). It would also codify other requirements in section 1927 of the Act pertaining to the Medicaid drug rebate (MDR) program and revise certain regulatory provisions presently codified at 42 CFR part 447, subpart I and make other changes concerning rebate requirements. As discussed below, these proposed revisions are consistent with the Secretary's authority set forth in section 1102 of the Act to publish regulations that are necessary to the efficient administration of the Medicaid program.

B. Changes Made by the Affordable Care Act

ish regulations that are necessary to the efficient administration of the Medicaid program.

B. Changes Made by the Affordable Care Act

Section 2501(a) of the Affordable Care Act amended section 1927(c) of the Act by increasing the minimum rebate percentage for most single source and innovator multiple source drugs from 15.1 percent of the average manufacturer price (AMP) to 23.1 percent of AMP. Section 2501(a) of the Affordable Care Act also amended section 1927(c) of the Act by establishing a minimum rebate percentage of 17.1 percent of AMP for certain single source and innovator multiple source clotting factors and single source and innovator multiple source drugs approved by the Food and Drug Administration (FDA) exclusively for pediatric indications. Section 2501(a) of the Affordable Care Act also added section 1927(b)(1)(C) to the Act to make changes to the non-Federal share of rebates by specifying that the amounts attributable to the increased rebate percentages be remitted to the Federal government. The amendments made by section 2501(a) of the Affordable Care Act were effective January 1, 2010.

Section 2501(b) of the Affordable Care Act amended section 1927(c) of the Act by increasing the rebate percentage for noninnovator multiple source drugs from 11 percent of AMP to 13 percent of AMP, effective January 1, 2010.

Section 2501(c) of the Affordable Care Act amended section 1903(m) of the Act by specifying new conditions for managed care organization (MCO) contracts, including that covered outpatient drugs dispensed to individuals eligible for medical assistance under Title XIX of the Act who are enrolled with a Medicaid MCO shall be subject to the same rebate required by the rebate agreement authorized under section 1927 of the Act. The Affordable Care Act also amended section 1903(m) of the Act to establish that MCO capitation rates shall be based on actual cost experience related to rebates and subject to Federal regulations at § 438.6 regarding actuarial soundness of capitation payments

nrolled with a Medicaid MCO shall be subject to the same rebate required by the rebate agreement authorized under section 1927 of the Act. The Affordable Care Act also amended section 1903(m) of the Act to establish that MCO capitation rates shall be based on actual cost experience related to rebates and subject to Federal regulations at § 438.6 regarding actuarial soundness of capitation payments. The legislation also provided that MCOs are responsible for reporting to the State certain utilization data and such other data as the Secretary determines necessary for the State to access the rebates authorized by this provision.

Section 2501(c) of the Affordable Care Act also made conforming amendments to section 1927(b) of the Act by requiring manufacturers that participate in the MDR program to provide rebates for drugs dispensed to individuals enrolled with a MCO, if the MCO is responsible for coverage of such drugs. It also amended section 1927(b) of the Act by requiring States to include information on drugs paid for by Medicaid MCOs under the State plan during the rebate period when requesting rebates from manufacturers. Finally, section 2501(c) modified section 1927(j)(1) of the Act to specify that covered outpatient drugs are not subject to the rebate requirements if such drugs are both subject to discounts under section 340B of the Public Health Service Act (PHSA) and dispensed by health maintenance organizations (HMOs), including Medicaid MCOs. The amendments made by section 2501(c) were effective March 23, 2010.

Section 2501(d) of the Affordable Care Act, as revised by section 1206(a) of HCERA, added a new subparagraph (C) to section 1927(c)(2) of the Act, effective for drugs paid for by a State on or after January 1, 2010. This provision modifies the unit rebate amount (URA) calculation for a drug that is a line extension (new formulation) of a single source or innovator multiple source drug that is an oral solid dosage form

e Affordable Care Act, as revised by section 1206(a) of HCERA, added a new subparagraph (C) to section 1927(c)(2) of the Act, effective for drugs paid for by a State on or after January 1, 2010. This provision modifies the unit rebate amount (URA) calculation for a drug that is a line extension (new formulation) of a single source or innovator multiple source drug that is an oral solid dosage form.

Section 2501(e) of the Affordable Care Act amended section 1927(c)(2) of the Act by adding a new subparagraph (D) and establishing a maximum on the total rebate amount for each single source or innovator multiple source drug at 100 percent of AMP, effective January 1, 2010.

Section 2501(f) of the Affordable Care Act made conforming amendments to section 340B of the Public Health Service Act, which are not addressed in this proposed rule.

Section 2503(a) of the Affordable Care Act amended section 1927(e) of the Act by revising the Federal upper reimbursement limit to be no less than 175 percent of the weighted average (determined on the basis of utilization) of the most recently reported monthly AMPs for pharmaceutically and therapeutically equivalent multiple source drug products that are available for purchase by retail community pharmacies on a nationwide basis. Additionally, it specifies that the Secretary shall implement a smoothing process for AMP which shall be similar to the smoothing process used in determining the average sales price (ASP) of a drug or biological under Medicare Part B. It amended section 1927(k) of the Act by revising the definition of AMP to mean the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies that purchase drugs directly from the manufacturer

in determining the average sales price (ASP) of a drug or biological under Medicare Part B. It amended section 1927(k) of the Act by revising the definition of AMP to mean the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies that purchase drugs directly from the manufacturer.

It also amended the definition of multiple source drug to specify, in part, that a covered outpatient drug qualifies as a multiple source drug if at least one other therapeutically equivalent drug product is sold or marketed in the United States, as opposed to in a State, during the rebate period. It added to section 1927(k) of the Act definitions of retail community pharmacy and wholesaler for purposes of section 1927 of the Act.

Section 2503(b) of the Affordable Care Act amended section 1927(b) of the Act by establishing a requirement that manufacturers report, not later than 30 days after the last day of each month of a rebate period under the agreement, on the manufacturer's total number of units that are used to calculate the monthly AMP for each covered outpatient drug. It also amended the preexisting requirement that the Secretary disclose

Section 2503(c) of the Affordable Care Act amended section 1927(f) of the Act by clarifying that the survey of retail prices described in such subsection applies to retail community pharmacies.

Section 2503(d) of the Affordable Care Act specified that the amendments made by section 2503 of the Affordable Care Act were effective October 1, 2010. Section 2503(d) of the Affordable Care Act further specified that the amendments made by section 2503 shall take effect without regard to whether final regulations to carry out such amendments have been issued by October 1, 2010.

Section 3301(d)(2) of the Affordable Care Act included a conforming amendment to the definition of “best price” under Medicaid at section 1927(c)(1)(C) of the Act

2010. Section 2503(d) of the Affordable Care Act further specified that the amendments made by section 2503 shall take effect without regard to whether final regulations to carry out such amendments have been issued by October 1, 2010.

Section 3301(d)(2) of the Affordable Care Act included a conforming amendment to the definition of “best price” under Medicaid at section 1927(c)(1)(C) of the Act. This amendment provides that any discounts provided by manufacturers under the Medicare coverage gap discount program under section 1860D-14A of the Act are exempt from a manufacturer's best price calculation, effective for drugs dispensed on or after July 1, 2010.

Section 7101(a) of the Affordable Care Act expanded the drug discount program under section 340B of the Public Health Service Act (PHSA) to include certain children's hospitals, freestanding cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals.

Section 204 of the Medicare and Medicaid Extenders Act of 2010 (Pub. L. 111-309) revised section 340B of the PHSA by removing children's hospitals from the orphan drug exclusion described in section 2302 of HCERA.

Section 1101(c) of HCERA also includes a conforming amendment to the definition of AMP under Medicaid at section 1927(k) of the Act by providing that discounts provided by manufacturers under the Medicare coverage gap discount program under section 1860D-14A of the Act are excluded from a manufacturer's determination of AMP, effective March 30, 2010.

C. Final Rule With Comment Period Published July 17, 2007

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On July 17, 2007, CMS published a final rule with comment period in the Federal Register (72 FR 39142). The purpose of the final rule with comment period was to finalize the provisions of the proposed rule CMS published in the Federal Register on December 22, 2006 (71 FR 77174) and to allow for further public comment on the AMP and Federal upper limit (FUL) outlier sections of the final rule. We received a variety of comments from drug manufacturers, membership organizations, wholesalers, law firms, PBMs, consulting firms and pharmacists in support of, and raising concerns with, the AMP and FUL provisions. However, we note that these regulatory provisions were withdrawn through the final rule published in the November 15, 2010 Federal Register (75 FR 69591). Accordingly, we will not be considering the comments received on the July 17, 2007, rule in this rulemaking document. Further, because the Affordable Care Act made substantial changes to the AMP and FUL provisions in section 1927 of the Act, we no longer expect to publish that final rule and we do not expect to address those comments in subsequent rulemaking.

D. Other Changes Concerning the Medicaid Drug Rebate Program

We are also proposing changes to address other program issues related to covered outpatient drugs, including key aspects of Medicaid payment and the MDR program, such as reimbursement to pharmacies for the ingredient cost of a drug, determination of AMP for authorized generic drugs, and the inclusion of territories in the MDR program. These changes are described in greater detail below under section II. Provisions of the Proposed Regulations.

II. Provisions of the Proposed Regulations

This proposed rule would revise regulations concerning the MDR program, set forth at section 1927 of the Act

the ingredient cost of a drug, determination of AMP for authorized generic drugs, and the inclusion of territories in the MDR program. These changes are described in greater detail below under section II. Provisions of the Proposed Regulations.

II. Provisions of the Proposed Regulations

This proposed rule would revise regulations concerning the MDR program, set forth at section 1927 of the Act. It implements, consistent with our general rulemaking authority, sections 2501, 2503, and 3301(d)(2) of the Affordable Care Act and sections 1101(c) and 1206 of HCERA, which revise requirements concerning the rebate program and payments for prescription drugs under the Medicaid program. The specific provisions we propose are described in detail below.

A. Basis and Purpose (§ 447.500)

Section 2501(c) of the Affordable Care Act established new requirements for manufacturers that participate in the MDR program to pay rebates for drugs dispensed to individuals enrolled with a Medicaid MCO if the MCO is responsible for coverage of such drugs. We propose to add § 447.500(a)(4) which would specify sections 1903(m)(2)(A)(xiii) and 1927(b) of the Act as the basis for rebates for covered outpatient drugs dispensed to individuals eligible for medical assistance who are enrolled in Medicaid MCOs. We propose to add § 447.500(a)(5) which would add section 1902(a)(30)(A) as an additional basis for calculating payments for covered outpatient drugs.

B. Definitions (§ 447.502)

1. Actual Acquisition Cost

d add section 1902(a)(30)(A) as an additional basis for calculating payments for covered outpatient drugs.

B. Definitions (§ 447.502)

1. Actual Acquisition Cost

States generally reimburse pharmacies for covered outpatient drugs that are prescribed and dispensed to Medicaid beneficiaries based on a two-part formula, which addresses the ingredient cost of a drug and a reasonable dispensing fee. Each State has the flexibility to determine the amount it will reimburse for each component of the formula based on the agency's best estimate of the price generally and currently paid by providers for a drug marketed or sold by a particular drug labeler and the cost associated with ensuring that possession of the appropriate covered outpatient drug is transferred to a Medicaid beneficiary. These reimbursement formulas are subject to review and approval by CMS through the State plan amendment (SPA) process.

In general, States currently reimburse for the covered outpatient drug based, in part, on the estimated acquisition cost (EAC). The EAC, as currently defined in Federal regulations at § 447.502 is the agency's best estimate of the price generally and currently paid by providers for a drug marketed or sold by a particular manufacturer or labeler in the package size of drug most frequently purchased by providers. We are proposing to both rename and revise this definition in this proposed rule.

Section 1902(a)(30)(A) of the Act requires, in part, that States have methods and procedures to assure that payment for Medicaid care and services is consistent with efficiency, economy, and quality of care. In accordance with these provisions and in light of the OIG reports concerning published prices (OIG Audit reports—A-06-00-00023, A-06-01-00053, A-06-02-00041), 1 we believe it is necessary for States to have a more accurate reference price to base reimbursement for prescription drugs. Therefore, we propose to replace the term, “estimated acquisition cost” with “actual acquisition cost” (AAC)

are. In accordance with these provisions and in light of the OIG reports concerning published prices (OIG Audit reports—A-06-00-00023, A-06-01-00053, A-06-02-00041), 1 we believe it is necessary for States to have a more accurate reference price to base reimbursement for prescription drugs. Therefore, we propose to replace the term, “estimated acquisition cost” with “actual acquisition cost” (AAC). We believe that changing this definition for

1 http://oig.hhs.gov/oas/reports/region6/60000023.htm; http://oig.hhs.gov/oas/reports/region6/60100053.htm; http://oig.hhs.gov/oas/reports/region6/60200041.htm.

2. Authorized Generic Drug

The definition of “authorized generic drug”, presently set forth in § 447.506(a), applies to rebate calculations, as set forth in subpart I “Payment for Drugs.” Therefore, we propose to remove the definition of “Authorized generic drug” from § 447.506 and move this definition to § 447.502. We would continue to define the term “Authorized generics drugs” as any drug sold, licensed or marketed under an NDA approved by the FDA under section 505(c) of the Federal Food Drug and Cosmetic Act (FFDCA) that is marketed, sold or distributed under a different labeler code, product code, trade name, trademark, or packaging (other than repackaging the listed drug for use in institutions) than the listed brand drug.

For purposes of the MDR Program, an authorized generic is any drug product marketed under the innovator or brand manufacturer's New Drug Application (NDA) approved under section 505(c) of the FFDCA, but labeled with a different NDC than the innovator or brand product. Authorized generics are categorized as innovator multiple source drugs for the purpose of computing the drug rebate.

nd drug.

3. Bona Fide Service Fee

In the July 17, 2007 AMP final rule, we defined bona fide service fees as fees paid by a manufacturer to an entity that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement and that are not passed on in whole or in part to a client or customer of an entity, whether or not the entity takes title to the drug. The Affordable Care Act specifies that the AMP shall exclude bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies including, but not limited to, distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative service agreements and patient care programs (such as medication compliance programs and patient education programs). In § 447.502, we propose to revise our current definition of bona fide service fees to include these fees paid by manufacturers to wholesalers or retail community pharmacies.

e fees, inventory management fees, product stocking allowances, and fees associated with administrative service agreements and patient care programs (such as medication compliance programs and patient education programs). In § 447.502, we propose to revise our current definition of bona fide service fees to include these fees paid by manufacturers to wholesalers or retail community pharmacies.

4. Bundled Sales

In the AMP final rule published on July 17, 2007, bundled sale was defined as an arrangement, regardless of physical packaging, under which the rebate, discount, or other price concession is conditioned upon the purchase of the same drug, drugs of different types (that is, at the nine-digit National Drug Code (NDC) level) or another product or some other performance requirement (for example, the achievement of market share, inclusion or tier placement on a formulary), or where the resulting discounts or other price concessions are greater than those which would have been available had the bundled drugs been purchased separately or outside the bundled arrangement. For bundled sales, the discounts are allocated proportionally to the total dollar value of the units of all drugs sold under the bundled arrangement. For bundled sales where multiple drugs are discounted, the aggregate value of all the discounts in the bundled arrangement must be proportionally allocated across all the drugs in the bundle. In response to manufacturer questions regarding whether a discount and resulting price for each product in a single customer contract that is independent and not contingent on the discount or pricing of any other product in the contract should be applied across all products; we stated previously that where a discount or price concession is established independently and not conditioned upon any other purchase or performance requirement (for example the achievement of market share, inclusion or tier placement on a formulary), or where the discount is not greater than if purchased outside of multi-product arrang

duct in the contract should be applied across all products; we stated previously that where a discount or price concession is established independently and not conditioned upon any other purchase or performance requirement (for example the achievement of market share, inclusion or tier placement on a formulary), or where the discount is not greater than if purchased outside of multi-product arrangement, there is no bundle within the meaning described in § 447.502. Though this is not addressed in the Affordable Care Act, we continue to agree with our response to this issue and thus have decided to include it in this discussion in order to further clarify the bundled sale definition. Therefore, we propose to add the following clarifying statement to the definition of bundled sale: The discounts in a bundled sale, including but not limited to those discounts resulting from a contingent arrangement, are allocated proportionally to the total dollar value of the units of all drugs sold under the bundled arrangement.

5. Clotting Factor

The Affordable Care Act established a minimum rebate percentage of 17.1 percent of AMP for a single source drug or an innovator multiple source drug that is a clotting factor for which a separate furnishing payment is authorized under section 1842(o)(5) of the Act and which is included on a list of such factors specified and updated regularly by the Secretary. Consistent with these provisions, we propose to define clotting factors as those drugs or products for which a separate furnishing payment is authorized under section 1842(o)(5) of the Act and which are included on a list of such factors specified and updated quarterly by CMS.

6. Covered Outpatient Drug

ection 1842(o)(5) of the Act and which are included on a list of such factors specified and updated quarterly by CMS.

6. Covered Outpatient Drug

In accordance with section 1927 of the Act, manufacturers that have entered into a Rebate Agreement with the Secretary are responsible for paying rebates to States for their covered outpatient drugs for which payment has been made under the state plan. Manufacturers are responsible for submitting required drug product data, including each drug's NDC. This NDC information is placed on the MDR file and used for assuring compliance with the statutory requirements.

There have been products identified in the drug product data file that do not meet the definition of a covered outpatient drug. Therefore, we believe it is necessary to provide clarification regarding the definition of a covered outpatient drug in section 1927(k)(2) of the Act and the limiting definition at section 1927(k)(3) of the Act. Accordingly, we propose to add a definition of covered outpatient drug to § 447.502.

We propose that a drug is considered a covered outpatient drug when the drug may be dispensed only upon prescription (except as discussed below with respect to certain non-prescription drugs), and it meets the following criteria as described in section 1927(k)(2) of the Act:

• The drug has been approved for safety and effectiveness as a prescription drug by the FDA under section 505 or 507 of the FFDCA where the manufacturer has obtained a NDA or under section 505(j) of the FFDCA where the manufacturer has obtained an Abbreviated New Drug Application (ANDA);

• The drug was commercially used or sold in the United States before the date of the enactment of the Drug Amendments of 1962, or is identical, similar or related (within the meaning of section 310.6(b)(1) of title 21 of the CFR) to such a drug; and has not been the subject of a final determination by the Secretary that it is a “new drug” (within the meaning of section 201(p) of the Federal Food, Drug, and Cosmetic Act) or an actio

sold in the United States before the date of the enactment of the Drug Amendments of 1962, or is identical, similar or related (within the meaning of section 310.6(b)(1) of title 21 of the CFR) to such a drug; and has not been the subject of a final determination by the Secretary that it is a “new drug” (within the meaning of section 201(p) of the Federal Food, Drug, and Cosmetic Act) or an action brought by the Secretary under section 301, 302(a), or 304(a) of such Act to enforce section 502(f) or 505(a) of such Act;

• The drug is one which is described in section 107(c)(3) of the Drug Amendments of 1962 and for which the Secretary has determined there is a compelling justification for its medical need or is identical, similar, or related to such a drug and for which the Secretary has not issued a notice for an opportunity for a hearing under section 505(e) of the FFDCA on a proposed order of the Secretary to withdraw approval of an application for such drug under the FFDCA because the Secretary has determined that the drug is less than effective for some or all conditions of use prescribed, recommended or suggested in its labeling;

• The drug is a biologic product, other than a vaccine which—

(1) May only be dispensed upon prescription,

(2) Is licensed under section 351 of the Public Health Service Act, and

(3) Is produced at an establishment licensed under such section to produce such product; or

• The drug is insulin certified under section 506 of the FFDCA

se prescribed, recommended or suggested in its labeling;

• The drug is a biologic product, other than a vaccine which—

(1) May only be dispensed upon prescription,

(2) Is licensed under section 351 of the Public Health Service Act, and

(3) Is produced at an establishment licensed under such section to produce such product; or

• The drug is insulin certified under section 506 of the FFDCA.

Consistent with section 1927(k)(3) of the Act, we propose that, except as discussed below, a drug, biological product, or insulin would not be considered a covered outpatient drug when that drug or product is billed as a bundled service with, and provided as part of or incident to and in the same setting as, any of the following services:

• Inpatient Hospital Services;

• Hospice Services;

• Dental Services, except that drugs for which the State plan authorizes direct reimbursement to the dispensing dentist are covered outpatient drugs;

• Physician services;

• Outpatient hospital services;

• Nursing facility and services provided by an intermediate care facility for the mentally retarded;

• Other laboratory and x-ray services; or

• Renal dialysis.

We further propose that the above exemptions to the definition of covered outpatient drug for combined services would not apply if the drug is carved out and billed separately from the service (for example, an infusion drug and x-ray are billed separately, not as a composite radiology service; therefore, the infusion drug is a covered outpatient drug).

parately, not as a composite radiology service; therefore, the infusion drug is a covered outpatient drug).

Additionally, section 1927(k)(3) of the Act provides that the definition of covered outpatient drug does not include any such drug or product for which a NDC number is not required by the FDA or a drug or biological used for a medical indication which is not a medically accepted indication. We note that for the purposes of the MDR we use an NDC format at either the NDC-9, which includes the labeler code and product code, to identify the product information, or the NDC-11, which includes the labeler code, product code, and the package code, to identify the product's package information. We are aware that FDA has a slightly different NDC format than what is used in the MDR program. (Please see the discussion under the definition of NDC.) For the purpose of the MDR program, we will continue to use the current NDC format of NDC-9, which includes the labeler code and the product code, to identify the product information and NDC-11, which includes the labeler code, product code, and package code, to identify the product's package information. However, if there is change to the current NDC format as a result of FDA action, then we will issue guidance, as necessary, to notify the public as well as to explain its impact on the MDR program.

fy the public as well as to explain its impact on the MDR program.

We are not involved with and do not have oversight for the designation of the NDC. The FDA requires NDCs for drugs that must be listed with the FDA in accordance with Federal Food, Drug, and Cosmetics Act (FFDCA), as amended by the Food and Drug Administration Amendments Act of 2007 (FDAAA) (Pub. L. 110-85). (21 CFR 207.25(b)(8)). The FDAAA amended section 510(p) of the FFDCA (21 U.S.C 360) to explicitly require that registration and listing information (including the submission of updated information) required under section 510 of the FFDCA, which includes information from both domestic and foreign establishments, be submitted by electronic means, unless the Secretary of Health and Human Services grants a request for waiver of this requirement because use of electronic means is not reasonable for the person requesting the waiver.

Section 1927(k)(3) of the Act provides that a covered outpatient drug does not include any such drug or product for which an NDC number is not required by the FDA. However, in accordance with section 1927(k)(2), and the requirements of section 510 of the FFDCA, we propose that a drug, whether prescription or over-the-counter (OTC), would only be treated as a covered outpatient drug if the drug is both required to have an NDC and is listed electronically with the FDA. We believe this additional standard is needed to ensure compliance with the prescribed drug provisions, FDA approval provisions, and the NDC listing provisions. Furthermore, this proposal is necessary in order for us to assure compliance with the drug rebate submission requirements, for CMS to verify State utilization data and manufacturer product data, and to assure the correct calculation of the offset amounts mandated by the Affordable Care Act

sure compliance with the prescribed drug provisions, FDA approval provisions, and the NDC listing provisions. Furthermore, this proposal is necessary in order for us to assure compliance with the drug rebate submission requirements, for CMS to verify State utilization data and manufacturer product data, and to assure the correct calculation of the offset amounts mandated by the Affordable Care Act. Additionally, this proposal aligns with a proposal submitted as part of the fiscal year (FY) 2012 President's Budget to require drugs to be properly listed electronically with the FDA as a requirement to be covered under Medicaid.

Therefore, if a manufacturer is required to list all of its NDCs electronically with the FDA, this would ensure that all the products in the MDR program meet the definition of section 1927(k)(3) of the Act. In addition, it would permit us to verify State and manufacturer submissions by referencing the FDA's electronic drug listing information.

Manufacturers are required to update their registration and listing information electronically in accordance with FDA's current registration and listing requirements.

Additionally, in order for us to fully implement these provisions, we are requiring that manufacturers submit any relevant approved FDA application numbers. When a product is listed with the FDA, the manufacturer is required to provide to the FDA the NDC and the application number, if any, for the product (21 CFR 207.25(b)). An http://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htm. The application number assists CMS in obtaining information from FDA as to whether a drug has been approved under a NDA under section 505 of FFDCA or an ANDA under section 505(j) of FFDCA. This information is critical to the definition of a covered outpatient drug under section 1927(k)(2) of the Act. Under the MDR program reporting requirements, drug manufacturers are required to report to CMS a drug category for each NDC

sists CMS in obtaining information from FDA as to whether a drug has been approved under a NDA under section 505 of FFDCA or an ANDA under section 505(j) of FFDCA. This information is critical to the definition of a covered outpatient drug under section 1927(k)(2) of the Act. Under the MDR program reporting requirements, drug manufacturers are required to report to CMS a drug category for each NDC. The drug category represents whether an NDC is classified as a brand name drug (single source drug (S) or innovator multiple source drug (I)) or a generic drug (noninnovator multiple source drug (N)). We use these drug category indications to determine the appropriate rebate percentage to calculate the unit rebate amounts, as well as the offset amounts under the Affordable Care Act.

We are also aware that some products that do not have an approved application number may be covered outpatient drugs. For example, we believe that certain products, such as prenatal prescription vitamins, potassium chloride, codeine sulfate, and hydrocortisone acetate may fall into this category. If a product does not have an FDA application number, in order to be considered a covered outpatient drug, the manufacturer must provide evidence demonstrating that its products meet the statutory definition of a covered outpatient drug under section 1927(k)(2) to 1927(k)(4). We will refer to this evidence of demonstration as covered outpatient drug status, or COD status. We are seeking public comments on this requirement, and in particular, comments identifying drugs or classes of drugs that do not have approved applications but should be deemed covered outpatient drugs.

This submission of data would provide critical information needed to calculate and verify the accuracy of such drug information

of demonstration as covered outpatient drug status, or COD status. We are seeking public comments on this requirement, and in particular, comments identifying drugs or classes of drugs that do not have approved applications but should be deemed covered outpatient drugs.

This submission of data would provide critical information needed to calculate and verify the accuracy of such drug information.

Therefore, we propose that manufacturers report to CMS the number of an approved FDA application for a product or otherwise show that the product meets the statutory definition of a covered outpatient drug under sections 1927(k)(2) and (3) of the Act, in order for CMS to calculate the offset amounts and validate product data to ensure the correct rebate calculation for each NDC in the MDR Program. By having a correct approved FDA application number or the COD status, CMS can more accurately determine the unit rebate amounts and product classification, critical to the rebate percentage calculation.

7. Customary Prompt Pay Discounts

In § 447.502, we propose to add a definition of customary prompt pay discount to ensure consistent application of such discounts among manufacturers when calculating AMP. Therefore, we propose to define customary prompt pay discounts as any discount off of the purchase price of a drug routinely offered by the manufacturer to a wholesaler for prompt payment of purchased drugs within a timeframe that is consistent with its customary business practices for payment.

8. Innovator Multiple Source Drug

saler for prompt payment of purchased drugs within a timeframe that is consistent with its customary business practices for payment.

8. Innovator Multiple Source Drug

As currently defined in § 447.502, an innovator multiple source drug means a multiple source drug that was originally marketed under an original new drug application (NDA) approved by the FDA, including an authorized generic drug. It also includes a drug product marketed by any cross-licensed producers, labelers, or distributors operating under the NDA and a covered outpatient drug approved under a product license approval (PLA), establishment license approval (ELA), or antibiotic drug approval (ADA). In this rule, we propose to add multiple source drugs originally marketed under a BLA as the BLA approval process is a successor to the PLA and ELA and drugs sold under a BLA are explicitly referenced in the definition of single source drug. To ensure that the correct drug category is reported for an innovator multiple source drug, as was discussed in Manufacturer Release #82, we wish to remind manufacturers, as is consistent with current policy, that an innovator multiple source (I) drug should be reported to CMS for a brand name drug that has therapeutic equivalents available. To determine if therapeutic equivalents are available for a brand name drug or not, you can access the FDA's Drugs@FDA at http://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_name and search by the Application Number. If therapeutic equivalents are available, then you will see the link to “Therapeutic Equivalents” in the “Drugs Details” page. If there are therapeutic equivalents available for the NDA or BLA, then the brand name drug should be reported as an innovator multiple source drug (I) to CMS.

the “Drugs Details” page. If there are therapeutic equivalents available for the NDA or BLA, then the brand name drug should be reported as an innovator multiple source drug (I) to CMS.

Additionally, over the course of the MDR program, questions have arisen regarding whether an “original NDA” is the same as an NDA and whether the drug category may be different if a drug is approved under an NDA. We are proposing to clarify that, for purposes of the MDR program, an original NDA is equivalent to an NDA filed by the manufacturer for approval under section 505 of the FFDCA for purposes of approval by the FDA for safety and effectiveness. In light of this definition, we are also proposing to use the term “NDA” when addressing such application types for brand name drugs and not use the term “original NDA” when referring to such drugs throughout this proposed rule.

9. Line Extension Drug (New Formulation)

The Affordable Care Act established a separate calculation for the unit rebate amount for a drug that is a line extension of a single source drug or an innovator multiple source drug that is an oral solid dosage form. Section 1927(c)(2)(C) of the Act, added by section 2501(d) of the Affordable Care Act, defines line extension to mean a new formulation of a drug, such as an extended release formulation. We propose to define line extension as a single source or innovator multiple source drug that is an oral solid dosage form that has been approved by the FDA, listed in Drugs@FDA http://www.accessdata.fda.gov/scripts/cder/drugsatfda/application file, as a change to the initial brand name listed drug in that it represents a new version of the previously approved listed drug, such as a new ester, a new salt or other noncovalent derivative; a new formulation of a previously approved drug; a new combination of two or more drugs; or a new indication for an already marketed drug

http://www.accessdata.fda.gov/scripts/cder/drugsatfda/application file, as a change to the initial brand name listed drug in that it represents a new version of the previously approved listed drug, such as a new ester, a new salt or other noncovalent derivative; a new formulation of a previously approved drug; a new combination of two or more drugs; or a new indication for an already marketed drug. We propose that regardless of whether the drug is approved under an NDA or a supplemental NDA, if the change to the drug is assigned to one of the above changes, it will be considered a line extension drug.

These modifications to the initial brand name listed drug are often approved under section 505(b)(2) of the FFDCA. A section 505(b)(2) application is a new drug application submitted under section 505(b)(1) and approved under section 505(c) of the FFDCA. A section 505(b)(2) application is one for which one or more of the investigations relied upon by the applicant to show whether a drug is safe and effective were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. Section 505(b)(2), as described in FDA

10. Manufacturer

For purposes of the MDR Program, we propose to clarify our current definition of manufacturer by revising it to state that a “manufacturer means any entity that holds the NDC for a covered outpatient drug or biological product”. This change in terminology is not intended change the scope of the definition.

11. Multiple Source Drug

is not intended change the scope of the definition.

11. Multiple Source Drug

On November 15, 2010, we published the “Medicaid Program; Withdrawal of Determination of Average Manufacturer Price, Multiple Source Drug Definition, and Upper Limits for Multiple Source Drugs” final rule in the Federal Register (75 FR 69591). That final rule withdrew the regulatory definition of multiple source drug. As previously noted, section 2503(a)(3) of the Affordable Care Act amended the definition of multiple source drug set forth in section 1927(k)(7) of the Act.

Therefore, in accordance with section 1927(k)(7) of the Act, as revised, we propose to define multiple source drug in § 447.502 as a covered outpatient drug for which there is at least one other drug product which—

(1) Is rated as therapeutically equivalent. For the list of drug products rated as therapeutically equivalent, we will use the FDA's most recent publication of ”Approved Drug Products with Therapeutic Equivalence Evaluations” which is currently available at http://www.fda.gov/cder/orange/default.htm or which can be viewed at the FDA's Freedom of Information Public Reading Room at 5600 Fishers Lane, Rm. 12A-30, Rockville, MD 20857;

(2) Is pharmaceutically equivalent and bioequivalent, as determined by the FDA; and

(3) Is sold or marketed in the United States during the rebate period.

12. National Drug Code

The Drug Listing Act of 1972 requires each registered drug establishment to provide the FDA with a current list of all drugs manufactured, prepared, propagated, compounded, or processed by it for commercial distribution. (See section 510 of the FFDCA (21 U.S.C. 360)). Drug products are identified and listed with FDA using a unique identifier called the National Drug Code (NDC). Under FDA regulations in 21 CFR part 207, the NDC is identified as a 10-digit, 3-segment number. The first segment, the labeler code, is assigned by the FDA

, prepared, propagated, compounded, or processed by it for commercial distribution. (See section 510 of the FFDCA (21 U.S.C. 360)). Drug products are identified and listed with FDA using a unique identifier called the National Drug Code (NDC). Under FDA regulations in 21 CFR part 207, the NDC is identified as a 10-digit, 3-segment number. The first segment, the labeler code, is assigned by the FDA. A labeler is a firm that manufactures the drug, including a repacker or relabeler, or a firm that distributes the drug under its own trade name or label. The second segment, the product code, identifies a specific strength, dosage form, and formulation for a particular firm. The third segment, the package code, identifies the trade package size and type. Both the product and package codes are assigned by the firm. The NDC will be in one of the following configurations: 4-4-2, 5-3-2, or 5-4-1.

In this proposed rule, we clarify that even though FDA currently uses a unique 10-digit NDC, for the purposes of the MDR program and this subpart we will continue to use an NDC format with the NDC-9, which includes the labeler code and the product code, to identify the product information and the NDC-11, which includes the labeler code, product code, and package code, to identify the product's package information. Manufacturers may include a leading zero in the product code or the package code segments of the NDC in order to arrive at the 5-4 NDC-9 or 5-4-2 NDC-11 when reporting their product to the MDR program.

13. Noninnovator Multiple Source Drug

As currently defined in § 447.502, a noninnovator multiple source drug means: (1) A multiple source drug that is not an innovator multiple source drug or a single source drug, (2) a multiple source drug that is marketed under an abbreviated NDA (ANDA) or an abbreviated antibiotic drug application, and (3) a drug that entered the market before 1962 that was not originally marketed under an NDA

In addition to a noninnovator multiple source drug as described, currently, there are other drugs on the market that have not gone through the FDA approval process, including but not limited to certain prescription pre-natal vitamins.

Therefore, we propose to amend the definition of a noninnovator multiple source drug to also include these other drugs that have not gone through FDA approval process but otherwise meet the definition of “covered outpatient drug”. However, if any of the drug products listed in this amended definition of a noninnovator multiple source drug subsequently receives a new NDA or ANDA approval from the FDA, the manufacturer must change the reporting of the product's drug category to correlate with the new product application type and furnish the appropriate information.

We also propose to amend the definition of noninnovator multiple source drug to clarify that for purposes of Medicaid payment and rebate calculations, the term shall include noninnovator drugs that are not therapeutically equivalent.

14. Oral Solid Dosage Form

CMS proposes to interpret oral solid dosage form in accordance to the FDA regulation at 21 CFR 206.3, which defines solid oral dosage form to mean capsules, tablets, or similar drug products intended for oral use. We also clarify that although FDA regulations at 21 CFR 206.3 uses the term “solid oral dosage form,” section 1927(c)(2)(C) specifically used the term “oral solid dosage form” in reference to the treatment of new formulations

sage form in accordance to the FDA regulation at 21 CFR 206.3, which defines solid oral dosage form to mean capsules, tablets, or similar drug products intended for oral use. We also clarify that although FDA regulations at 21 CFR 206.3 uses the term “solid oral dosage form,” section 1927(c)(2)(C) specifically used the term “oral solid dosage form” in reference to the treatment of new formulations. Therefore, CMS will treat the term “oral solid dosage form” to mean the same as FDA's “solid oral dosage form.”

CMS proposes to further interpret an oral route of administration as any drug that is intended to be taken by mouth. In accordance with these provisions, CMS is providing manufacturers with guidance in order to assist them in determining which drugs should be considered as oral solid dosage forms (please see Table 1). This list will be updated based on any changes to the FDA's definition of solid dosage forms.

Table 1—List of Oral Solid Dosage Forms Bar, Chewable Capsule Capsule (Immediate/Complete Release) (Hard Or Soft Gelatin, Chewable Or Perle) Capsule, Coated Capsule, Coated (Hard Or Soft Gelatin) Capsule, Coated Pellets Capsule, Coated, Extended Release Capsule, Delayed Action (Hard Or Gelatin, Coated, Enteric Coated) Capsule, Delayed Release Pellets Capsule, Enteric Coated Pellets Capsule, Extended Release Capsule, Film Coated (Hard Gelatin) Capsule, Film Coated, Extended Release Capsule, Gelatin Coated Capsule, Hard Gelatin Capsule, Liquid Filled Capsule, Repeat Action Capsule, Soft Gelatin Capsule, Soft Gelatin Liquid-Filled Capsule, Sustained Action (Hard Or Soft Gelatin, Coated, Film Coated) Dispersible Tablet Granule, Delayed Release Granule, Enteric Coated Gum (Chewing, Medicated) Lollipop Lozenge Pellet, Coated, Extended Release Tablet Tablet (Immediate/Complete Release) (Coated, Film Coated, Sugar Coated, Multilayer, Uncoated, Buccal, Chewable) Tablet, Chewable Tablet, Coated Tablet, Coated Particles Tablet, Controlled Release Tablet, Delayed Action (Coated, Enteric Coated) Tablet, Delayed

e Tablet Granule, Delayed Release Granule, Enteric Coated Gum (Chewing, Medicated) Lollipop Lozenge Pellet, Coated, Extended Release Tablet Tablet (Immediate/Complete Release) (Coated, Film Coated, Sugar Coated, Multilayer, Uncoated, Buccal, Chewable) Tablet, Chewable Tablet, Coated Tablet, Coated Particles Tablet, Controlled Release Tablet, Delayed Action (Coated, Enteric Coated) Tablet, Delayed Release Tablet, Delayed Release Particles Tablet, Dispersible Tablet, Enteric Coated Particles Tablet, Extended Release Tablet, Film Coated Tablet, Film Coated, Extended Release Tablet, Multilayer (Coated, Film Coated) Tablet, Multilayer, Extended Release Tablet, Orally Disintegrating, Delayed Release Tablet, Orally Disintegrating Tablet, Repeat Action (Coated) Tablet, Soluble Tablet, Sugar Coated Tablet, Sustained Action (Coated, Film Coated, Multilayer, Uncoated) Tablet, Sustained Release, Film Coated Tablet, Uncoated, Lozenge Tablet, Uncoated, Lozenge, Lypophilized Tablet, Uncoated, Troche Tablet, Sustained Action, Membrane Controlled Pastille Troche/Lozenge Wafer CMS would not consider the following as oral solid dosage forms because these dosage forms are intended to be made into a liquid or suspension prior to oral consumption.

Table 2—List of Other Dosage Forms Capsule, for Microemulsion Granule, Effervescent, for Solution Granule Effervescent Tablet, Effervescent Granule, Effervescent, for Solution Tablet, for Solution Granule Effervescent, for Suspension Tablet Effervescent for Solution Granule, for Oral Suspension Tablet, for Suspension 15. Over-the-Counter (OTC) Drug

for Suspension 15. Over-the-Counter (OTC) Drug

With the exception of certain tobacco cessation drugs for pregnant women, or an EPSDT service, section 1927(d)(2) of the Act currently allows States to exclude from coverage or otherwise restrict coverage of OTC drugs. We propose to add a definition of OTC drugs in order to clarify which products would be treated as OTC drugs in the Medicaid program. This definition is consistent with our current policy and would not change how these drugs are treated for purposes of coverage under the Medicaid program. We propose to define OTC drugs as drugs that are appropriate for use without the supervision of a health care professional such as a physician, and which can be purchased by a consumer without a prescription, although for Medicaid coverage a prescription continues to be required. OTC drugs may be marketed under an approved premarket application (NDA or ANDA) or in many cases, may be marketed under an OTC monograph. In some instances, FDA permits these drugs to be marketed under a monograph that is not yet final (such as where there is an OTC tentative final monograph), as stated in 21 CFR part 330 and FDA guidance. Unlike NDAs which are based on premarket approval of specific, finished drug products, monographs specify the active ingredients, indications, dosages, and claims that can be made by the OTC drug products.

16. Pediatric Indications

, and claims that can be made by the OTC drug products.

16. Pediatric Indications

The Affordable Care Act established a minimum rebate percentage of 17.1 percent of AMP for single source and innovator multiple source drugs approved by the FDA exclusively for pediatric indications. To implement this requirement, we propose to clarify which drugs will be subject to this minimum rebate percentage. In regulations at 21 CFR 201.57 and 21 CFR 201.80, the FDA defines pediatric use for most drug labeling to mean use for pediatric populations and pediatric patients, that is, “the pediatric age group, from birth to 16 years, including age groups often called neo-nates, infants, children, and adolescents.” Accordingly, given the statutory amendments, we propose to define “a drug approved by the Food and Drug Administration exclusively for pediatric indications” to mean a drug product approved by the FDA exclusively with indications for pediatric use, with the pediatric age group defined from birth to 16 years. Drugs that are not approved and labeled exclusively for pediatric use, that merely reference use in children in any part of the labeling, or that receive a supplemental indication for pediatric use, will not qualify for the minimum rebate of 17.1 percent of AMP as specified in section 1927(c)(1)(B)(iii) of the Act. In accordance with the statute, we propose to apply this definition only to drug products whose FDA-approved labeling includes only indications for children from birth to 16 years of age. Drugs without this explicit age labeling will not satisfy the requirement that the drug be approved exclusively for pediatric use and will not qualify for the minimum rebate of 17.1 percent of AMP. We are proposing to apply such a definition only when this specific pediatric age cohort

17. Professional Dispensing Fee

The definition of dispensing fee will remain unchanged as it already enumerates those costs to dispense a drug that the pharmacy incurs

the requirement that the drug be approved exclusively for pediatric use and will not qualify for the minimum rebate of 17.1 percent of AMP. We are proposing to apply such a definition only when this specific pediatric age cohort

17. Professional Dispensing Fee

The definition of dispensing fee will remain unchanged as it already enumerates those costs to dispense a drug that the pharmacy incurs. However, we propose to replace the term “dispensing fee” with “professional dispensing fee” as drug ingredient cost is only one component of the two-part formula that States generally use to reimburse pharmacies for prescribed drugs dispensed to Medicaid beneficiaries; and, we feel that this change from “dispensing fee” to “professional dispensing fee” reinforces our position that once the reimbursement for the drug is properly determined, the dispensing fee should reflect the pharmacist's professional services and costs associated with ensuring that possession of the appropriate covered outpatient drug is transferred to a Medicaid beneficiary. Therefore, as States change their payment for ingredient cost, we also propose to require States to reconsider the dispensing fee methodology consistent with the revised requirements.

18. Single Source Drug

As currently defined in § 447.502, a single source drug means a covered outpatient drug that is produced or distributed under an NDA approved by the FDA, including a drug product marketed by any cross-licensed producers or distributors operating under the NDA. It also includes a covered outpatient drug approved under a BLA, PLA, ELA, or ADA.

butors operating under the NDA. It also includes a covered outpatient drug approved under a BLA, PLA, ELA, or ADA.

As previously stated in the discussion of the proposed changes to the definition of innovator multiple source drug, for purposes of the MDR program, we have defined an original NDA as an NDA filed by the manufacturer with the FDA for purposes of approval for safety and effectiveness. Further, we wish to remind a manufacturer that as long as it has an approved NDA number issued by the FDA, a drug is considered to be a single source drug and is required to be reported with as an “S” drug category to CMS under the MDR program unless there are FDA approved therapeutic equivalents. To determine if therapeutic equivalents are available, you can access the FDA's Drugs@FDA and search by the Application Number. If therapeutic equivalents are available for the NDA, then you will see the link to “Therapeutic Equivalents” in the “Drugs Details” page. If there are no therapeutic equivalents available for the NDA, then the brand name drug should be reported as an “S” to CMS.

19. States

Currently, for purposes of this subpart, the term “States” is defined as the 50 States and the District of Columbia. However, excluding the territories from this definition of States prevents them from receiving manufacturer rebates through the MDR program. We recognize that the territories have, over the years, expressed an interest in participating in the MDR program and that such rebates would in part offset the costs of providing Medicaid drugs. We have decided, in accordance with section 1101(a)(1) of the Act, to propose revising the definition of States to include the 50 States, the District of Columbia, and the territories (the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa)

pating in the MDR program and that such rebates would in part offset the costs of providing Medicaid drugs. We have decided, in accordance with section 1101(a)(1) of the Act, to propose revising the definition of States to include the 50 States, the District of Columbia, and the territories (the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and American Samoa). Therefore, for drug rebates, we believe it is in the best interests of the Medicaid program to include the territories in the definition of States so that they may achieve the savings that drug rebates provide and we propose that the definition of States should be revised accordingly. We also acknowledge that there may be concerns with the territories participating in the MDR program; therefore, we request comments regarding the inclusion of the territories in the definition of States.

20. United States

Similar to our review of the term “States”, we also examined our use of the term “United States”. As with the term “States,” we defined United States only to mean the 50 States and the District of Columbia. However, section 1101(a)(2) of the Act provides that when used in a geographic sense, the term “United States” means, except where otherwise provided, the States. In accordance with this definition, we think it is reasonable to conclude that in this context, the term is used in the geographical sense in that it contemplates the sales of drugs in any of the States. (Please see section II.K. Upper limits for multiple source drugs (§ 447.514) of the preamble for further discussion on the sale of drugs on a nationwide basis.) Therefore, for the purposes of this subpart, we propose, in accordance with section 1101(a) of the Act, to define the “United States” to mean the 50 States plus the District of Columbia and the territories as described above.

21. Wholesaler

The Affordable Care Act added a definition of the term “wholesaler” at section 1927(k)(11) of the Act

scussion on the sale of drugs on a nationwide basis.) Therefore, for the purposes of this subpart, we propose, in accordance with section 1101(a) of the Act, to define the “United States” to mean the 50 States plus the District of Columbia and the territories as described above.

21. Wholesaler

The Affordable Care Act added a definition of the term “wholesaler” at section 1927(k)(11) of the Act. We propose to adopt that definition and define wholesaler to mean a drug wholesaler that is engaged in wholesale distribution of prescription drugs to retail community pharmacies, including (but not limited to) manufacturers, repackers, distributors, own-label distributors, private-label distributors, jobbers, brokers, warehouses (including manufacturer's and distributor's warehouses, chain drug warehouses, and wholesale drug warehouses), independent wholesale drug traders, and retail community pharmacies that conduct wholesale distributions.

We are not proposing that a wholesaler be licensed by the State inasmuch as that is not a requirement of the Act, in comparison to the definition of retail community pharmacy, where State licensing is required. In considering how to clarify this term, we reviewed the definition of “wholesale distributor,” that appears in section 510(g) of the FFDCA, and regulations at 21 CFR 807.3(s), which provide that the term “wholesale distributor” means “any person (other than the manufacturer or the initial importer) who distributes a device from the original place of manufacture to the person who makes the final delivery or sale of the device to the ultimate consumer or user.” While this definition is helpful, it does not provide additional clarity to the definition in the Act. Therefore, we are proposing to define wholesaler as set forth in the Act, but are specifically seeking comment on further data sources or definitions we could apply here that would help to further clarify the term wholesaler.

C. Determination of Average Manufacturer Price (§ 447.504)

user.” While this definition is helpful, it does not provide additional clarity to the definition in the Act. Therefore, we are proposing to define wholesaler as set forth in the Act, but are specifically seeking comment on further data sources or definitions we could apply here that would help to further clarify the term wholesaler.

C. Determination of Average Manufacturer Price (§ 447.504)

1. AMP Historical Background

The Omnibus Budget Reconciliation Act of 1990 (OBRA '90) (Pub. L. 101-508) added section 1927 to the Act, which became effective on January 1, 1991. OBRA '90 established the MDR program and defined the AMP with respect to a covered outpatient drug of a manufacturer for a rebate period as the average unit price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail pharmacy class of trade. Manufacturers who entered into and had in effect a rebate agreement with CMS were required to report AMP on a quarterly basis. The AMP was used to calculate the rebates paid by manufacturers to the States for drugs

The Deficit Reduction Act of 2005 (DRA) made significant changes to the Medicaid prescription drug provisions of the Act. The DRA amended section 1927(k)(1) of the Act to revise the definition of AMP to exclude customary prompt pay discounts to wholesalers, effective January 1, 2007. The DRA defined AMP, in part, to mean, with respect to a covered outpatient drug of a manufacturer for a calendar quarter, the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail pharmacy class of trade.

manufacturer for a calendar quarter, the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail pharmacy class of trade.

Section 6001(c)(3) of the DRA required the Office of Inspector General (OIG) to review the requirements for and manner in which AMP was to be determined and recommend changes to the Secretary by June 1, 2006. Section 6001(c)(3) of the DRA also required the Secretary to clarify the requirements for and the manner in which AMPs are determined by promulgating a regulation no later than July 1, 2007, taking into consideration the OIG's recommendation.

In May 2006, the OIG issued a report, “Determining Average Manufacturer Prices for Prescription Drugs under the Deficit Reduction Act of 2005”. In this report the OIG recommended that CMS:

• Clarify the requirements in regards to the definition of retail pharmacy class of trade and treatment of pharmacy benefit manager (PBM) rebates and Medicaid sales; and

• Consider addressing issues raised by industry groups, such as:

+ Administrative and service fees,

+ Lagged price concessions for returned goods,

+ The frequency of AMP reporting,

+ AMP restatements, and

+ Base date AMP.

The OIG also recommended that the Secretary direct CMS to: • Issue guidance in the near future that specifically addresses the implementation of the AMP-related reimbursement provisions of the DRA; and

• Encourage States to analyze the relationship between AMP and pharmacy acquisition cost to ensure that the Medicaid Program appropriately reimburses pharmacies for estimated acquisition costs.

e that the Medicaid Program appropriately reimburses pharmacies for estimated acquisition costs.

At that time, we recognized that there had been concerns expressed by the OIG and GAO in several prior reports regarding AMP because of inconsistencies in the way manufacturers determine AMP, changes in the marketplace, and the introduction of newer business practices such as payment of services fees. We also realized that, in light of the DRA amendments, AMP would serve two distinct purposes: determining rebates, and serving as the basis for establishing the FUL for multiple source drugs. As a result of a preliminary injunction that had been entered in a lawsuit challenging the definition of AMP, CMS had never used the AMP final rule as a basis for calculating FULs.

Following the enactment of the Affordable Care Act, in the November 15, 2010 Federal Register (75 FR 69591), “Withdrawal of Determination of Average Manufacturer Price, Multiple Source Drug Definition, and Upper Limits for Multiple Source Drugs”, we withdrew § 447.504 “Determination of AMP” from the AMP final rule following a period of notice and comment on the proposed withdrawal.

2. AMP Under the Affordable Care Act

On March 23, 2010, the Affordable Care Act was enacted. As noted above, section 2503 of the Affordable Care Act revised the definition of AMP. The Affordable Care Act was further amended by section 202 of the Education Jobs and Medicaid Funding Act (Pub. L. 111-226), which was enacted on August 10, 2010.

August 10, 2010.

For the determination of AMP, the Affordable Care Act revises the definition in section 1927(k) of the Act to eliminate the term “retail pharmacy class of trade” and adds a definition of the term “retail community pharmacy”, as well as wholesaler. It identifies specific entities drug manufacturers are to include and exclude from the determination of AMP and (as amended by Pub. L. 111-226) clarifies exceptions to the excluded entities for inhalation, infusion, instilled, implanted, or injectable drugs that are not generally dispensed through a retail community pharmacy.

In this proposed rule, we propose a new § 447.504 “Determination of AMP,” which would be based on section 1927(k)(1) of the Act as amended by the Affordable Care Act. Below we provide a detailed discussion of the proposed definition of retail community pharmacy, other terms used in the determination of AMP, the entities proposed for inclusion and exclusion from AMP, and our proposed policy regarding the treatment of inhalation, infusion, instilled, implanted, or injectable drugs (also referred to as 5i drugs, defined in proposed § 447.507), that are not generally dispensed through a retail community pharmacy in the determination of AMP.

These provisions of the Affordable Care Act became effective on October 1, 2010 without regard to whether final regulations to carry out the provisions have been promulgated. Section 2503(a)(2) of the Affordable Care Act revised the definition of AMP to mean, for a covered outpatient drug of a manufacturer for a rebate period, the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies, and by retail community pharmacies that purchase drugs directly from the manufacturer

n promulgated. Section 2503(a)(2) of the Affordable Care Act revised the definition of AMP to mean, for a covered outpatient drug of a manufacturer for a rebate period, the average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies, and by retail community pharmacies that purchase drugs directly from the manufacturer.

In accordance with section 1927(k)(1)(B)(i) of the Act, as amended by section 2503(a)(2)(B) of the Affordable Care Act, drug manufacturers are to exclude the following from the determination of the AMP:

• Customary prompt pay discounts extended to wholesalers;

• Bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies, including (but not limited to) distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative services agreements and patient care programs (such as medication compliance programs and patient education programs);

• Reimbursement by manufacturers for recalled, damaged, expired, or otherwise unsalable returned goods, including (but not limited to) reimbursement for the cost of goods and any reimbursement of costs associated with return goods handling and processing, reverse logistics, and drug destruction;

• Payments received from, and rebates or discounts provided to, PBMs, managed care organizations, health maintenance organizations, insurers, hospitals, clinics, mail order pharmacies, long term care providers, manufacturers, or any other entity that does not conduct business as a wholesaler or retail community pharmacy, unless the drug is an inhalation, infusion, instilled, implanted, or injectable drug that is not generally dispensed through a retail community pharmacy.

• Discounts provided by manufacturers under the Medicare Coverage Gap Discount Program (section 1860D-14A of the Act)

are providers, manufacturers, or any other entity that does not conduct business as a wholesaler or retail community pharmacy, unless the drug is an inhalation, infusion, instilled, implanted, or injectable drug that is not generally dispensed through a retail community pharmacy.

• Discounts provided by manufacturers under the Medicare Coverage Gap Discount Program (section 1860D-14A of the Act).

Section 1927(k)(1)(B)(ii) of the Act specifies that, notwithstanding section 1927(k)(1)(B)(i) of the Act, manufacturers are to include in the determination of AMP for a covered outpatient drug any other discounts, rebates, payments, or other financial transactions that are received by, paid

How AMP is defined and what sales are included in the determination of AMP affects manufacturers, pharmacy groups, the Federal and State governments and Medicaid beneficiaries, and often there are competing interests at play. The provisions of the Affordable Care Act regarding AMP serve two distinct purposes: Determining rebates and determining the basis for the FUL for multiple source drugs.

There is a direct relationship between which entities are to be included and excluded from AMP calculations and the basis for determining the FUL for multiple source drugs. The Affordable Care Act defines AMP to include prices paid to manufacturers by wholesalers for drugs distributed to retail community pharmacies and by retail community pharmacies that purchase drugs directly from the manufacturer. These sales are typically at higher prices than those of the specifically excluded entities such as the pharmacy benefit managers, managed care organizations, health maintenance organizations, insurers, hospitals, clinics, mail order pharmacies, long term care providers, and manufacturers. AMP calculations based on those sales to retail community pharmacies, as opposed to other pharmacies (such as mail order pharmacies), would likely result in a higher AMP value, given that AMP would be limited to higher priced sales

anagers, managed care organizations, health maintenance organizations, insurers, hospitals, clinics, mail order pharmacies, long term care providers, and manufacturers. AMP calculations based on those sales to retail community pharmacies, as opposed to other pharmacies (such as mail order pharmacies), would likely result in a higher AMP value, given that AMP would be limited to higher priced sales. This higher AMP value would benefit the retail pharmacy industry because it is likely that the FUL, based on those AMPs, would be higher and in turn the maximum pharmacy reimbursement, based on those FULs, would be higher. On the other hand, a higher AMP would, in all likelihood, result in higher rebate payments from manufacturers. A broader definition of AMP, which would include sales to entities that purchase drugs at lower prices, would likely lower the AMP value, which in turn would lower drug manufacturer rebate liabilities.

AMP values also have an impact on States and potentially beneficiaries. Increasing AMP values and associated rebate payments would have a direct impact on State expenditures. However, increasing the FULs would also have a direct impact on State payments. On the other hand, if pharmacy reimbursement rates are too low, then it is conceivable that some pharmacies may elect not to participate in the Medicaid program, which could impact beneficiary access to pharmacy services. Similarly, States and the Federal government have an interest in assuring an appropriate level of rebates and beneficiaries' access to care.

3. Definitions

Following is a detailed discussion of the specific terms associated with AMP calculations that we propose to define at § 447.504(a).

a. Average Unit Price

s to care.

3. Definitions

Following is a detailed discussion of the specific terms associated with AMP calculations that we propose to define at § 447.504(a).

a. Average Unit Price

We propose to define average unit price to mean a manufacturer's quarterly sales included in AMP less all required adjustments divided by the total units sold and included in AMP by the manufacturer in a quarter. The quarterly sales figure used in this definition represent sales of the drug unit in the lowest identifiable amount (for example, tablet or capsule for solid dosage forms, milliliter for liquid forms, gram for ointments or creams) as reported by the manufacturer.

b. Charitable and Not-for-Profit Pharmacies

For the purposes of this subpart, we propose to define charitable and not-for-profit pharmacies as organizations described in section 501(c)(3) of the Internal Revenue Code of 1986.

c. Insurers

The DRA amended section 1902(a)(25) of the Act by modifying the definition of “third parties” and “health insurers” to clarify the inclusion of self-insured plans, managed care organizations, PBMs, or other parties that are by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service. Although, the DRA clarified “third parties”, the Affordable Care Act referenced the term “insurer” in section 1927(k)(1)(B)(IV) of the Act and provided that payments received from many of these third party organizations (for example, pharmacy benefit managers, managed care organizations, health maintenance organizations, insurers) be excluded from the AMP calculation.

For the purposes of this subpart, we propose to define insurers as entities that are responsible for the payment of drugs but do not directly purchase drugs from manufacturers and are not in the supply chain to receive delivery of these drugs. Instead, insurers are responsible for payment to pharmacies for drugs dispensed to their members, and do not take actual possession of these drugs.

d. Net Sales

We propose to define net sales to mean quarterly gross sales revenue to wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies that purchase drugs directly from manufacturers less cash discounts allowed, and other price reductions (other than rebates under section 1927 of the Act or price reductions specifically excluded by section 1927 of the Act, or regulations under this subpart) which reduce the amount received by the manufacturer.

e. Retail Community Pharmacy

The Affordable Care Act eliminated the term “retail pharmacy class of trade” from the definition of AMP, and added section 1927(k)(10) of the Act to include a definition of the term “retail community pharmacy.” This change significantly narrows the entities previously included in the definition of retail pharmacy class of trade. In accordance with the Act, we propose to define retail community pharmacy to mean an independent pharmacy, a chain pharmacy, a supermarket pharmacy, or a mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses medications to the general public at retail prices. We further propose to incorporate the requirement set forth in section 1927(k)(10) of the Act that such term does not include a pharmacy that dispenses prescription medications to patients primarily through the mail, nursing home pharmacies, long-term care facility pharmacies, hospital pharmacies, clinics, charitable or not-for-profit pharmacies, government pharmacies, or pharmacy benefit managers

We further propose to incorporate the requirement set forth in section 1927(k)(10) of the Act that such term does not include a pharmacy that dispenses prescription medications to patients primarily through the mail, nursing home pharmacies, long-term care facility pharmacies, hospital pharmacies, clinics, charitable or not-for-profit pharmacies, government pharmacies, or pharmacy benefit managers.

Section 1927(k)(1) of the Act as amended by the Affordable Care Act specifies that manufacturers are responsible for reporting the AMP based upon their sales to retail community pharmacies or wholesalers for drugs dispensed to retail community pharmacies.

In addition, the statutory provision for the determination of AMP suggests there are entities (for example, specialty pharmacies, home infusion pharmacies, and home health care providers), which are conducting business as wholesalers or retail community pharmacies which could be included in the determination of AMP. Section 1927(k)(1)(B)(i)(IV) of the Act excludes from the determination of AMP “payments received from and rebates or discounts provided to * * * any other entity that does not conduct business as a wholesaler or a retail community pharmacy * * *”. We believe that to give the provision some meaning, the statute contemplates the inclusion of payments and discounts from those entities that actually conduct business as a wholesaler or retail community pharmacy. This http://www.fda.gov/Drugs/DrugSafety/PostmarketDrugSafetyInformationforPatientsandProviders/ucm111350.htm .

Some REMS drugs are required to be dispensed by specially certified pharmacies, resulting in certain manufacturers utilizing a restricted network of certified specialty and home infusion pharmacies, which are not specifically included in the definition of retail community pharmacy at section 1927(k)(10) of the Act. In addition, certain oral covered outpatient drugs are dispensed solely through these specialty and home infusion pharmacies

sed by specially certified pharmacies, resulting in certain manufacturers utilizing a restricted network of certified specialty and home infusion pharmacies, which are not specifically included in the definition of retail community pharmacy at section 1927(k)(10) of the Act. In addition, certain oral covered outpatient drugs are dispensed solely through these specialty and home infusion pharmacies. Therefore, if these entities were to be excluded from AMP calculations, an AMP would not be available for these oral covered outpatient drugs. As a result, manufacturers would not be able to calculate rebates for these products and the statutory provisions requiring rebates for such drugs would, in essence, be rendered meaningless. We do not believe that the law should be read to create such a result. Section 1927(b)(1) of the Act requires that manufacturers must provide rebates for all of their covered outpatient drugs for which payment was made under the State plan. These provisions were not amended by the Affordable Care Act. Therefore, we believe in light of the provisions of section 1927(k)(1)(B)(i) of the Act, there is a basis for allowing sales, rebates, and discounts provided to entities conducting business as wholesalers or retail community pharmacies to be included in the determination of AMP for those drugs for which an AMP could not otherwise be calculated. Such an interpretation continues to give meaning to the rebate responsibilities of manufacturers in section 1927(b) of the Act. Therefore, we propose to include in the determination of AMP payments received from and rebates or discounts provided to an entity that conducts business as a wholesaler or retail community pharmacy, such as specialty and home infusion pharmacies, and home healthcare providers, since these entities dispense medications to segments of the general public at retail prices. We specifically invite comments on this part of the proposed rule

e determination of AMP payments received from and rebates or discounts provided to an entity that conducts business as a wholesaler or retail community pharmacy, such as specialty and home infusion pharmacies, and home healthcare providers, since these entities dispense medications to segments of the general public at retail prices. We specifically invite comments on this part of the proposed rule.

Manufacturers contend that there is an administrative burden and difficulty in obtaining records assuring that their sales to wholesalers are distributed to retail community pharmacies. We took their concerns into consideration and considered whether or not to propose that the sales which cannot be definitely identified as sales to retail community pharmacies or wholesalers for drugs dispensed to retail community pharmacies would be eligible for inclusion in the sales that manufacturers use for AMP calculations. We received comments during the comment period for the Proposed Rule “Withdrawal of Determination of Average Manufacturer Price, Multiple Source Drug Definition, and Upper Limits for Multiple Source Drugs” published in the Federal Register on September 3, 2010 (75 FR 54073) that raised issues regarding the implementation of the new definition of AMP. As these comments were outside the scope of that proposed rule, these comments were not specifically addressed as part of final rule published on November 15, 2010 (75 FR 69591). However, these comments do provide insight into issues of concern for the various stakeholders, especially in regards to the implementation of the new proposed definition of AMP.

One of the issues raised was whether manufacturers should be allowed to presume that sales of drugs are distributed to retail community pharmacies when those sales of drugs are to wholesalers that do not further differentiate their sales among end purchasers

ght into issues of concern for the various stakeholders, especially in regards to the implementation of the new proposed definition of AMP.

Based on information provided from these comments it is our understanding that wholesalers generally resell either to manufacturer-contracted customers (which would generate a chargeback or similar record), or to other purchasers with no contract discount arrangement with the manufacturer. In the case of sales to wholesalers where no chargeback record is generated, manufacturers contend that they have minimal to no verifiable information regarding the final transactions on this category of wholesaler re-sales. Manufacturers have expressed concern that they would not have adequate data regarding the wholesaler's actual purchaser to accurately determine if the drug was ultimately sold to retail community pharmacies. Therefore, we considered proposing a so-called “presumed inclusion” policy, where the manufacturer could (absent documentation to the contrary) presume that sales to wholesalers are for drugs distributed to retail community pharmacies, without data concerning that actual distribution. Based upon the comments we received from manufacturers we believe such a policy would be consistent with the market based on the typical chargeback arrangements that manufacturers have in place for institutional and other non-retail community pharmacy purchasers. The presumed inclusion policy would not require manufacturers to obtain data regarding the actual distribution to retail community pharmacies

upon the comments we received from manufacturers we believe such a policy would be consistent with the market based on the typical chargeback arrangements that manufacturers have in place for institutional and other non-retail community pharmacy purchasers. The presumed inclusion policy would not require manufacturers to obtain data regarding the actual distribution to retail community pharmacies. Through the presumed inclusion policy, in the absence of chargeback or other verifiable data, manufacturers would be able to presume that the sales of drugs to wholesalers are for drugs that are distributed to retail community pharmacies.

However, we recognize that there could be concerns with respect to whether manufacturers should be permitted to presume, in the absence of adequate documentation to the contrary, that prices paid by wholesalers are for drugs that are actually distributed to retail community pharmacies. Allowing this practice of presumptive inclusion could affect the calculation of the FULs for multiple source drugs because it arguably would permit the inclusion of lower AMPs in that calculation based on sales that may not have been actually distributed to retail community pharmacies. It could be argued that if manufacturers are allowed to presume that all drug sales are distributed to retail community pharmacies, AMP would be lower because it could include sales to entities (for example, mail order pharmacies and hospitals) that are able to buy the drugs at lower prices than retail community pharmacies. On the other hand, it could also be argued that, despite these concerns, there would be no adverse consequences to the FULs if manufacturers could presume sales distribution to retail community pharmacies because the sales that would be captured using the presumptive inclusion policy are those sales that do not generate chargebacks

to buy the drugs at lower prices than retail community pharmacies. On the other hand, it could also be argued that, despite these concerns, there would be no adverse consequences to the FULs if manufacturers could presume sales distribution to retail community pharmacies because the sales that would be captured using the presumptive inclusion policy are those sales that do not generate chargebacks. In comments Federal Register on September 3, 2010 (75 FR 54073), manufacturers claim that allowing the presumed inclusion policy would not create any adverse consequences concerning pharmacy payments. They believe that these sales would, in all likelihood, have a higher net price than institutional or chargeback-generating sales. Additionally, they contend that the volume of AMP-eligible sales used in calculating the FUL could be increased because the additional sales to wholesalers without chargeback data would be added to the volume calculation for determining the weighted average of monthly AMPs. Therefore, they argue that calculating AMPs utilizing the presumptive inclusion policy could result in higher AMPs than AMPs based on actual data and those higher AMPs would be weighted more heavily in the FULs calculation.

We also considered instances where manufacturers are only including in their calculation of AMP those sales where there is adequate verifiable documentation showing that the drug was actually distributed to a retail community pharmacy, whether directly or through a wholesaler. However, we recognize that in this approach there may be instances where the wholesaler actually re-sells the drug to the retail community pharmacies but the manufacturer does not have documentation regarding that actual sale to the retail community pharmacy. Therefore, in contravention of the statute, those sales would not be included in the AMP calculation since the manufacturer does not have adequate documentation

e that in this approach there may be instances where the wholesaler actually re-sells the drug to the retail community pharmacies but the manufacturer does not have documentation regarding that actual sale to the retail community pharmacy. Therefore, in contravention of the statute, those sales would not be included in the AMP calculation since the manufacturer does not have adequate documentation.

While we recognize such concerns, we have decided to propose that manufacturers report the AMP based upon their actual sales to retail community pharmacies or wholesalers for drugs distributed to retail community pharmacies. Although we are not proposing a presumed inclusion policy, we did consider both approaches and recognize that there are obstacles with each. We acknowledge that a reasonable alternate approach would be one of presumed inclusion because the statute provides a more structured definition of what is to be included and excluded from AMP. However, we have concerns that a presumed inclusion policy would lead to the inclusion of sales by a manufacturer to entities not contemplated in the statutory definition. Accordingly, for purposes of this proposed rule, we are proposing that manufacturers must calculate AMP based on sales: (1) To wholesalers for drugs distributed to retail community pharmacies, or (2) to retail community pharmacies. We seek comments regarding this section and request information concerning distribution data, specifically data concerning wholesaler sales to the retail community pharmacies so that we can further consider this policy decision.

4. Sales Included in the Determination of AMP

Following is a discussion of specific sales, discounts, rebates, payments, nominal price sales, and other financial transactions that we propose to include in the determination of AMP at § 447.504(b).

tion data, specifically data concerning wholesaler sales to the retail community pharmacies so that we can further consider this policy decision.

4. Sales Included in the Determination of AMP

a. Sales to Wholesalers (§ 447.504(b)(1))

The definition of AMP in section 1927(k)(1) of the Act, as amended by the Affordable Care Act, specifies that AMP is to be calculated, in part, based on the prices paid by wholesalers for drugs dispensed through retail community pharmacies. Therefore, we propose that sales to wholesalers for drugs distributed to retail community pharmacies are to be included in the determination of AMP.

b. Sales to Other Manufacturers (§ 447.504(b)(2))

We propose that sales to other manufacturers who act as wholesalers are to be included in the determination of AMP to the extent that such sales are for drugs distributed to retail community pharmacies. This provision should be read in concert with the definition of wholesaler found in section 1927(k)(11) of the Act.

c. Retail Community Pharmacies (§ 447.504(b)(3))

Section 1927(k)(1)(B)(ii) of the Act, as revised by the Affordable Care Act specifies that manufacturers are to include in the determination of AMP, discounts, rebates, payments or other financial transactions that are received by, paid by, or passed through to, retail community pharmacies, as defined earlier in this section. Therefore, we propose to include in the determination of AMP, notwithstanding those price reductions specifically excluded by statute or this regulation, discounts, rebates, payments, or other financial transactions that are received by, paid by, or passed through to, retail community pharmacies. Again, we are unsure to what extent the manufacturer knows that such transactions occur

this section. Therefore, we propose to include in the determination of AMP, notwithstanding those price reductions specifically excluded by statute or this regulation, discounts, rebates, payments, or other financial transactions that are received by, paid by, or passed through to, retail community pharmacies. Again, we are unsure to what extent the manufacturer knows that such transactions occur. However, in accordance with our reading of the statute, the manufacturer must include such discounts where it has evidence or documentation demonstrating that such discounts have been passed through to the pharmacy.

d. Entities Conducting Business as Retail Community Pharmacies or Wholesalers, Including But Not Limited to Specialty Pharmacies, Home Infusion Pharmacies and Home Healthcare Providers (§ 447.504(b)(4))

As discussed earlier, we believe in light of the provisions of section 1927(k)(1)(B)(i) of the Act, there is a basis for allowing sales, rebates, and discounts provided to entities conducting business as wholesalers or retail community pharmacies to be included in the determination of AMP for those drugs for which an AMP could not otherwise be calculated. It is our understanding that certain covered outpatient drugs are dispensed primarily, if not solely, through such entities as specialty pharmacies, home infusion pharmacies, or home healthcare providers. We propose that these pharmacies be considered entities that are conducting business as wholesalers or retail community pharmacies. While not specifically identified in the statutory definition of retail community pharmacy, these pharmacies do conduct business as a retail community pharmacy inasmuch as they dispense medications to the general public at retail prices and are licensed by the State as a pharmacy

hat these pharmacies be considered entities that are conducting business as wholesalers or retail community pharmacies. While not specifically identified in the statutory definition of retail community pharmacy, these pharmacies do conduct business as a retail community pharmacy inasmuch as they dispense medications to the general public at retail prices and are licensed by the State as a pharmacy. While they may be serving a specific part of the general public based on a certain medical condition, the drugs dispensed by these pharmacies are sold in the retail marketplace and are available to any member of the general public who has one of these medical conditions. Therefore, we propose that manufacturers are to include in the determination of AMP the sales of covered outpatient drugs that are dispensed through entities conducting business as wholesalers or retail community pharmacies, which include but are not limited to specialty pharmacies, home infusion pharmacies, and home healthcare providers.

5. Sales Excluded From the Determination of AMP

Following is a discussion of specific sales, discounts, rebates, payments and other payments that we propose to exclude from the determination of AMP at § 447.504(c).

a. Prices to Other Federal Programs Including TRICARE—(§ 447.504(c)(1)-§ 447.504(c)(3))

ral Programs Including TRICARE—(§ 447.504(c)(1)-§ 447.504(c)(3))

Manufacturers that participate in the MDR program can also participate in other Federal programs which set the prices and/or discounts for drugs, and these prices are not generally available to retail community pharmacies. We propose that in light of section 1927(k) of the Act, prices to Federal programs should be excluded from AMP. These Federal programs include the Indian Health Service (IHS), the DVA, a State home receiving funds under section 1741 of title 38, United States Code, the Department of Defense (DoD), the Public Health Service (PHS), a covered entity described in section 1927(a)(5)(B) of the Act (including inpatient prices charged to hospitals described in section 340B (a)(4)(L) of the PHSA), the Federal Supply Schedule (FSS) of the General Services Administration (GSA); or any depot prices (including TRICARE) and single award contract prices, of any agency of the Federal government.

On March 17, 2009, the Department of Defense (DoD) issued a regulation entitled, Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)/TRICARE: Inclusion of TRICARE Retail Pharmacy Program in Federal Procurement of Pharmaceuticals (74 FR 11279). That regulation implements section 703 of the National Defense Authorization Act for fiscal year 2008 (NDAA, Pub. L. 110-181) which states that for any prescription filled on or after the date of enactment of the NDAA, the TRICARE Retail Pharmacy Program will be treated as an element of the DoD for purposes of procurement of drugs by Federal agencies under section 8126 of title 38, United States Code (U.S.C.). In accordance with that provision as well as the revised definition of AMP in section 1927(k)(1) of the Act, we propose that TRICARE Retail Pharmacy Program prices should be treated as prices to DoD and therefore excluded from the calculation of AMP.

ed as an element of the DoD for purposes of procurement of drugs by Federal agencies under section 8126 of title 38, United States Code (U.S.C.). In accordance with that provision as well as the revised definition of AMP in section 1927(k)(1) of the Act, we propose that TRICARE Retail Pharmacy Program prices should be treated as prices to DoD and therefore excluded from the calculation of AMP.

b. Sales Outside the 50 States, the District of Columbia and Territories (§ 447.504(c)(4))

The proposed definition of “United States” in § 447.502 would define “United States” to mean the 50 States, the District of Columbia and the territories. We, therefore, propose that sales to entities outside the 50 States, the District of Columbia and the territories are not within the scope of the definition of sales to retail community pharmacy, and that drugs sold to these entities would not be considered eligible sales within the definition of AMP. Therefore, we propose that sales to entities not within the 50 States, the District of Columbia or the territories be excluded from the manufacturers' determination of AMP.

c. Hospitals and Hospital Pharmacy Sales (§ 447.504(c)(5))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that sales to hospitals are excluded from the determination of AMP. Further, the term “retail community pharmacy” excludes hospital pharmacies. Therefore, we propose to clarify that sales to hospitals, including direct and indirect sales where the drug is used in either the inpatient setting or the outpatient pharmacy for outpatient hospital use are excluded from the determination of AMP.

d. Sales to Health Maintenance Organizations (HMOs) (Including Managed Care Organizations (MCOs)) (§ 447.504(c)(6))

l use are excluded from the determination of AMP.

d. Sales to Health Maintenance Organizations (HMOs) (Including Managed Care Organizations (MCOs)) (§ 447.504(c)(6))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that sales to HMOs and MCOs are excluded from the determination of AMP. The Affordable Care Act does not specifically address HMO/MCO operated pharmacies. However, given the broad reference in the statute to HMOs and MCOs, we propose to clarify that sales and associated rebates and discounts to HMO/MCO operated pharmacies are excluded from the determination of AMP.

e. Long-Term Care Facility Pharmacies (§ 447.504(c)(7))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that sales and associated rebates and discounts to long-term care providers are excluded from the determination of AMP. Further, the term retail community pharmacy excludes nursing home pharmacies and long-term care facility pharmacies. Therefore, we propose to clarify that sales and associated rebates and discounts to long-term care providers, including nursing facility pharmacies, nursing home pharmacies, long-term care facilities, long-term care facilities pharmacies, contract pharmacies for the nursing facility where these sales can be identified, and other entities where the drugs are dispensed through a nursing facility pharmacy, such as assisted living facilities, be excluded from the determination of AMP.

f. Mail Order Pharmacies (§ 447.504(c)(8))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that the term retail community pharmacy excludes pharmacies that dispense prescription medications to patients primarily through the mail. We consider these to be mail order pharmacies and as such we propose to clarify that sales to mail order pharmacies are excluded from the determination of AMP.

(§ 447.504(c)(8))

g. Clinics and Other Outpatient Facilities (§ 447.504(c)(9))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that sales to clinics are excluded from the determination of AMP. In 42 CFR 440.90, clinic services is defined as preventative, diagnostic, therapeutic, rehabilitative, or palliative services that are furnished by a facility that is not part of a hospital but is organized and operated to provide medical care to outpatients. The term includes the following services furnished to outpatients: (a) Services furnished at the clinic by or under the direction of a physician or dentist, and (b) Services furnished outside the clinic by clinic personnel under the direction of a physician to an eligible individual who does not reside in a permanent dwelling or does not have a fixed home or mailing address.

Although the Affordable Care Act did not specifically address the treatment of outpatient facilities in the determination of AMP, we believe that in accordance with the definition of AMP in section 1927(k)(1) of the Act, as well as the definition of clinic in 42 CFR 440.90, sales to outpatient facilities such as surgical centers, ambulatory care centers, dialysis centers, End-Stage Renal Disease clinics, outpatient hospital clinics and mental health centers should be excluded from the AMP. Therefore, we propose to exclude sales and associated rebates and discounts to clinics and outpatient facilities from the determination of AMP.

tion of clinic in 42 CFR 440.90, sales to outpatient facilities such as surgical centers, ambulatory care centers, dialysis centers, End-Stage Renal Disease clinics, outpatient hospital clinics and mental health centers should be excluded from the AMP. Therefore, we propose to exclude sales and associated rebates and discounts to clinics and outpatient facilities from the determination of AMP.

h. Government Pharmacies (§ 447.504(c)(10))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that the definition of retail community pharmacy does not include government pharmacies. We propose to define government pharmacies as pharmacies operated or owned by Federal, state, county, and municipal governments. We also propose that sales to government

i. Sales to Charitable and Not-for-Profit Pharmacies (§ 447.504(c)(11)-§ 447.504(c)(12))

Section 1927(k) of the Act, as revised by the Affordable Care Act specifies that the definition of retail community pharmacy does not include charitable or not-for-profit pharmacies. We propose to define charitable or not-for-profit pharmacies as section 501(c) organizations. Section 501(c) organizations are those described in the Internal Revenue Code and are tax-exempt, nonprofit corporations or associations. We propose that sales to these not-for-profit and charitable pharmacies be excluded from the determination of AMP.

j. Insurers § 447.504(c)(13))

The Affordable Care Act defined AMP by specifying that payments received from, and rebates or discounts provided to insurers are to be excluded from the determination of AMP. Therefore, we propose to exclude from the determination of AMP payments received from, and any rebates, discounts, or payments that are provided directly to insurers and that are not passed on to retail community pharmacies

However, we note that drugs sold to wholesalers for distribution to retail community pharmacies or drugs sold directly to retail community pharmacies that are subsequently reimbursed by insurers when sold by the pharmacy to beneficiaries are part of the chain of sales from manufacturers to wholesalers or retail community pharmacies. In accordance with our reading of the statute, the sales to wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies would be included in AMP calculations, regardless of how the drug is ultimately reimbursed when provided to the beneficiary.

k. Administrative Fees, Including Bona Fide Service Fees, as Well as the Treatment of Group Purchasing Organizations (GPOs) (§ 447.504(c)(14))

As described earlier, we propose to revise the definition of bona fide service fees in § 447.502 to include fees provided as specific examples of bona fide service fees in the Affordable Care Act. The Affordable Care Act specifies that bona fide service fees paid by manufacturers to wholesalers or retail community pharmacies include, but are not limited to, distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative service agreements and patient care programs (such as medication compliance programs and patient education programs).

The current regulations define bona fide service fees, in part, to mean fees paid by a manufacturer to an entity that represent fair market value for a bona fide, itemized service

ees, inventory management fees, product stocking allowances, and fees associated with administrative service agreements and patient care programs (such as medication compliance programs and patient education programs).

The current regulations define bona fide service fees, in part, to mean fees paid by a manufacturer to an entity that represent fair market value for a bona fide, itemized service. We continue to be concerned that these fees could be used as a vehicle to provide discounts, as opposed to fees at “fair market value” for bona fide services. Thus, to avoid potential fraud concerns, we are retaining our definition, but we have chosen not to define “fair market value” at this time. Due to the rapidly changing market in which new types of arrangements arise, we believe that manufacturers should appropriately determine fair market value and make reasonable assumptions consistent with adequate documentation that will support their payment for these services at fair market rates sufficient that an outside party can determine the basis for the fair market value determination. This is consistent with the 2007 AMP Final Rule (72 FR 39184) and the ASP reporting rule (71 FR 69667).

In accordance with the statute, we propose that bona fide service fees should be excluded from the calculation of AMP. We further propose that, in light of the statutory definition, administrative fees and other fees which are not specifically excluded by the Affordable Care Act, but which meet the definition of bona fide service fees, should also be excluded from the determination of AMP. We are not proposing to further define the type of fees used as examples in the definition of bona fide service fees because we believe that these terms can be read in concert with the current definition of bona fide service fee. As noted previously, they provide specific examples of what could qualify as a bona fide service fee

service fees, should also be excluded from the determination of AMP. We are not proposing to further define the type of fees used as examples in the definition of bona fide service fees because we believe that these terms can be read in concert with the current definition of bona fide service fee. As noted previously, they provide specific examples of what could qualify as a bona fide service fee. We note however that retroactive price adjustments, sometimes also known as price appreciation credits, do not meet the definition of a bona fide service fee as they do not reflect any service or offset of a bona fide service performed on behalf of the manufacturer.

The statute does not specifically exclude GPO fees from the AMP calculation. To the extent that bona fide service fees, including, but not limited to distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative service agreements and patient care programs (such as medication compliance programs and patient education programs) and other fees to GPOs meet the definition of “bona fide service fee,” we propose that such fees should be excluded from the determination of AMP and are not considered price concessions. However, as consistent with the definition of bona fide service fee at § 447.502 where these fees are passed on in whole or in part to a wholesaler or retail community pharmacy, the fees would not qualify as bona fide service fees. To the extent this occurs, such fees cannot be considered bona fide service fees and, in accordance with section 1927(k)(1)(B)(ii) of the Act, should be included in AMP.

l. Customary Prompt Pay Discounts (§ 447.504(c)(15))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that customary prompt pay discounts that are extended to wholesalers are to be excluded from the determination of AMP. Therefore, we are proposing that customary prompt pay discounts extended to wholesalers be excluded from the determination of AMP.

uded in AMP.

l. Customary Prompt Pay Discounts (§ 447.504(c)(15))

m. Returned Goods (§ 447.504(c)(16))

Section 1927(k) of the Act, as revised by the Affordable Care Act, specifies that reimbursement by manufacturers for recalled, damaged, expired, or otherwise unsalable returned goods, including (but not limited to) reimbursement for the cost of goods, and any reimbursement of costs associated with return goods handling and processing, reverse logistics, and drug destruction are excluded from the determination of AMP. We propose to incorporate this definition into this rule, but note that it is applicable only to the extent that payment for these returned goods covers the cost of returns and does not otherwise serve as payment to the pharmacy as a price concession. In addition, we propose to exclude the value of returned goods themselves from the determination of AMP when returned in good faith.

We are not proposing to define the terms recalled, damaged, and expired as we believe they are self-explanatory within the standard industry practice. We likewise are not defining unsalable, but would also base it on standard industry practice to determine under what conditions and/or circumstances drugs would be considered unsalable. We are requesting comments regarding whether we should define these terms or further define how these industry standards should be set. We also request examples of what would qualify as unsalable.

n. Medicare Coverage Gap Discount (§ 447.504(c)(17))

Section 3301 of the Affordable Care Act established the Medicare Coverage Gap Discount Program under sections 1860D-43 and 1860D-14A of the Act

e. We are requesting comments regarding whether we should define these terms or further define how these industry standards should be set. We also request examples of what would qualify as unsalable.

n. Medicare Coverage Gap Discount (§ 447.504(c)(17))

Section 3301 of the Affordable Care Act established the Medicare Coverage Gap Discount Program under sections 1860D-43 and 1860D-14A of the Act. Section 1101(c) of the Affordable Care Act further specified that discounts provided by manufacturers under the Medicare coverage gap discount program will be excluded from AMP. Therefore, we propose that discounts under the Medicare coverage gap discount program should be excluded from AMP.

o. PBM Price Concessions (§ 447.504(c)(18))

Section 1927(k)(1)(B) of the Act, as revised by the Affordable Care Act, revised the definition of AMP by excluding payments received from, and rebates or discounts provided to, pharmacy benefit managers (PBMs) and mail order pharmacies. Therefore, we propose to exclude from the calculation of AMP, payments received from and rebates or discounts provided to PBMs, including their mail order pharmacy's purchases to the extent that no part of the rebates, discounts or payments are received by, paid by, or passed through to retail community pharmacies.

p. Treatment of Medicaid Rebates in AMP (§ 447.504(c)(19))

We propose to exclude rebates under the national rebate agreement or a CMS-authorized State supplemental rebate agreement paid to State Medicaid Agencies from the determination of AMP. We are doing so in light of the definition of section 1927(k)(1) of the Act, because these rebates affect the manufacturer and the State, and there is no direct effect on the sale price of these drugs to retail community pharmacies.

Entities not specifically addressed in the statute.

q. Sales to Hospices (§ 447.504(c)(20))

The Affordable Care Act did not specifically address the treatment of sales to hospices in the determination of AMP

section 1927(k)(1) of the Act, because these rebates affect the manufacturer and the State, and there is no direct effect on the sale price of these drugs to retail community pharmacies.

Entities not specifically addressed in the statute.

q. Sales to Hospices (§ 447.504(c)(20))

The Affordable Care Act did not specifically address the treatment of sales to hospices in the determination of AMP. We propose, in light of the revisions in sections 1927(k)(1)(A) and 1927(k)(10) of the Act, to exclude hospice sales from the definition of AMP. Hospice pharmacies are outside the scope of the definition of retail community pharmacy. Further, these pharmacies serve a defined population and do not dispense medications to the general public at retail prices.

r. Sales to Prisons (§ 447.504(c)(21))

We propose that the sales to prisons are outside the scope of the definition of retail community pharmacy; drugs sold to these entities serve a defined population in that facility and are not available to the general public.

s. Direct Sales to Physicians (§ 447.504(c)(22) and § 447.504(d)(1))

Except for the sale of inhalation, infusion, instilled, implanted and injectable drugs (also referred to as the 5i drugs, and which are discussed in detail later in this section) we do not believe, in light of the definition of retail community pharmacy in section 1927(k)(10) of the Act, that physicians meet the definition of a retail community pharmacy. However, in light of the specific revisions to section 1927(k)(1)(B)(i)(IV) by section 202 of the Education Jobs and Medicaid Funding Act (Pub. L. 111-226), we believe that certain sales to physicians should be included in AMP. Since we have defined the 5i drugs as those which are primarily physician-administered, we believe in light of the statutory amendments, the case can be made that the sale (and associated discounts) of these 5i drugs to physicians should be included in the determination of AMP

on Jobs and Medicaid Funding Act (Pub. L. 111-226), we believe that certain sales to physicians should be included in AMP. Since we have defined the 5i drugs as those which are primarily physician-administered, we believe in light of the statutory amendments, the case can be made that the sale (and associated discounts) of these 5i drugs to physicians should be included in the determination of AMP. Therefore, we propose in § 447.504(d)(1) that for 5i drugs, sales (and associated rebates or discounts) to physicians are included in the determination of AMP. However, in the case of non-5i drugs, we propose at § 447.504(c)(26) that direct sales to physicians be excluded from the determination of AMP.

t. Direct Sales to Patients (§ 447.504(c)(23))

We propose that direct sales to patients be excluded from AMP as these sales are outside the scope of the definition of retail community pharmacy in section 1927(k)(10) of the Act.

u. Free Goods (§ 447.504(c)(24))

We propose that where a drug or any other item is given away, but not contingent on any purchase requirement, there is no sale and, therefore, that transaction would be excluded from the determination of AMP.

v. Manufacturer Coupons (§ 447.504(c)(25))

We propose in light of the revised definition of AMP that manufacturer coupons to a consumer redeemed by the manufacturer, agent, or another entity acting on behalf of the manufacturer should be excluded from AMP, but only to the extent that the full value of the coupon is passed on to the consumer and the retail community pharmacy does not receive any discount, rebate or price concessions in connection with the manufacturer coupons.

w. Voucher Programs (§ 447.504(c)(26))

ce concessions in connection with the manufacturer coupons.

w. Voucher Programs (§ 447.504(c)(26))

We propose that manufacturer vouchers would be excluded from the determination of AMP because the benefits of such vouchers are passed onto the patient and the retail community pharmacy does not receive any discount, rebate or price concessions in connection with the manufacturer voucher programs. However, to the extent that the retail community pharmacy receives a discount, rebate, or other price concession, in accordance with section 1927(k)(1)(B)(ii) of the Act, it shall be included in AMP.

x. Manufacturer-Sponsored Drug Discount Card Programs (§ 447.504(c)(27))

We propose in light of the revised definition of AMP that prices negotiated under a manufacturer-sponsored drug discount program would be excluded from the determination of AMP, provided the discount is passed on to the patient and the retail community pharmacy does not receive any discount, rebate or price concessions in connection with the manufacturer-sponsored drug discount card program.

y. Manufacturer-Sponsored Patient Refund/Rebate Programs (§ 447.504(c)(28))

The Affordable Care Act did not explicitly address the treatment of prices negotiated under a manufacturer-sponsored patient refund or rebate program. To the extent the manufacturer provides a full or partial refund or rebate to the patient for out-of-pocket costs and the retail community pharmacy does not realize any discounts or rebates or receive any price concession in connection with the manufacturer-sponsored patient refund/rebate programs, we propose in light of the revised definition of AMP that prices negotiated under a manufacturer sponsored patient refund or rebate program would be excluded from the determination of AMP.

z. Copayment and Patient Assistance Programs (§ 447.504(c)(29))

The Affordable Care Act did not address the treatment of patient assistance programs, including copayment assistance programs

/rebate programs, we propose in light of the revised definition of AMP that prices negotiated under a manufacturer sponsored patient refund or rebate program would be excluded from the determination of AMP.

z. Copayment and Patient Assistance Programs (§ 447.504(c)(29))

The Affordable Care Act did not address the treatment of patient assistance programs, including copayment assistance programs. We believe in light of the revised definition of AMP that patient assistance programs, including copayment assistance programs that provide free goods that are not contingent on future purchases to patients would be

6. Inhalation, Infusion, Instilled, Implanted, and Injectable Drugs (§ 447.504(d) and § 447.507)

In accordance to section 1927(k)(1)(B)(i)(IV) of the Act, manufacturers are to exclude from the determination of AMP for a covered outpatient drug for a rebate period, any payments received from, and other discounts or rebates, that are provided to any other entity that does not conduct business as a wholesaler or retail community pharmacy. Certain specialty covered outpatient drugs are not generally dispensed through retail community pharmacies and in those instances manufacturers would be unable to generate an AMP which would prevent rebate calculations for those drugs. Section 202 of the Education, Jobs and Medicaid Funding Act (Pub. L. 111-226), enacted August 10, 2010, amended the Affordable Care Act definition of AMP at section 1927(k)(1) of the Act to include sales for the 5i drugs that are not generally dispensed through retail community pharmacies. This provision was added to ensure that an AMP could be calculated and Medicaid rebates could be collected from manufacturers for the 5i drugs that are not generally sold at retail community pharmacies. (See 156 Cong. Rec. S6766 (Aug. 5, 2010)).

This provision went into effect on October 1, 2010 and revises a manufacturer's AMP calculation for the 5i drugs to include entities other than retail community pharmacies that dispense such drugs

MP could be calculated and Medicaid rebates could be collected from manufacturers for the 5i drugs that are not generally sold at retail community pharmacies. (See 156 Cong. Rec. S6766 (Aug. 5, 2010)).

This provision went into effect on October 1, 2010 and revises a manufacturer's AMP calculation for the 5i drugs to include entities other than retail community pharmacies that dispense such drugs.

While the enactment of this legislation addressed the need to ensure that rebates would be collected for these 5i drugs that are “not generally dispensed through retail community pharmacies,” it also raised additional issues that were not directly addressed in the statute. Based upon section 1927(k)(1)(B)(i)(IV) of the Act, we have identified the following issues that would require further clarification: (1) Identification of 5i drugs, (2) clarification of the term “not generally dispensed,” (3) determination of sales, discounts and rebates included in the 5i calculation, and (4) identification of other entities included in the definition.

We also received requests from manufacturers and pharmacies requesting guidance on this provision; specifically regarding how to interpret “not generally dispensed through a retail community pharmacy” and how to identify these 5i drugs.

We considered issuing a list identifying the specific 5i drugs that are to be included in this category. Second, we considered how to define the term “not generally dispensed.” Finally, we considered clarifying which sales, discounts, and other financial transactions would be included in the determination of AMP for these drugs.

nally, we considered clarifying which sales, discounts, and other financial transactions would be included in the determination of AMP for these drugs.

Based on our understanding of the market as well as other Federal programs, we believe most 5i drugs are administered parenterally or through an item of durable medical equipment (DME) and often require physician supervision during administration. We considered defining each type of administration route; however, we believe that it is not necessary to define the terms because the terms are essentially self explanatory. We are seeking comments on this decision.

We considered using the Medicare Part B standards to identify 5i drugs, given that Medicare Part B covers a limited number of outpatient prescription drugs that are not usually self-administered, such as those given in a hospital outpatient department or doctor's office. In addition, Medicare Part B covers outpatient prescription drugs provided through an item of durable medical equipment, such as an infusion pump or nebulizer, and injectable drugs administered by a licensed medical practitioner, if considered reasonable and necessary.

Medicare Part B does not have a comprehensive, all inclusive list of covered inhalation, infusion, injectable, instilled, or implanted drugs. However, it already has a publicly available reference which lists drugs that are “not usually self-administered” and could be considered for coverage under Medicare Part B. In addition, the Medicare Part B ASP NDC-HCPCS Crosswalk file identifies drugs that could be considered for coverage under Medicare Part B; it is publically accessible on the CMS Web site at http://www.cms.gov/McrPartBDrugAvgSalesPrice/01a19_2010aspfiles.asp and is updated on a quarterly basis. The Medicare Part B ASP NDC-HCPCS Crosswalk file also includes drugs which do not meet the 5i criteria, specifically those oral drugs covered by Part B following a transplant as well as Part B oral anti-emetics and oral cancer drugs

are Part B; it is publically accessible on the CMS Web site at http://www.cms.gov/McrPartBDrugAvgSalesPrice/01a19_2010aspfiles.asp and is updated on a quarterly basis. The Medicare Part B ASP NDC-HCPCS Crosswalk file also includes drugs which do not meet the 5i criteria, specifically those oral drugs covered by Part B following a transplant as well as Part B oral anti-emetics and oral cancer drugs. We considered using the Medicare Part B ASP NDC-HCPCS Crosswalk file to identify 5i drugs. However, we believe it would not be optimal because it is not an all inclusive list of inhalation, infusion, instilled, implanted and injectable drugs and therefore would likely miscategorize some 5i drugs.

We also considered whether CMS or the manufacturers should determine which drugs qualify as a 5i drug. In doing so, we considered whether or not it would be difficult for manufacturers to determine which drugs should be classified as an inhalation, infusion, instilled, implanted, or injectable drugs for the determination of AMP using the route of administration approved by the FDA or based upon the drug's NDC.

We also considered if we should identify the 5i drugs based upon their NDC number. If we were to identify the 5i drugs, we determined it would not provide reliable data and still require us to make available, as well as continuously update, a set of guidelines that would likely require an outside data source. In addition to the nuances of identifying existing drugs, it would be a continuous challenge to maintain a reliable list due to an evolving marketplace with the introduction of new drugs and removal of existing drugs.

ugs and removal of existing drugs.

Although we determined it would not be practical for CMS to provide a list identifying the 5i drugs, we considered providing a list of routes of administration as identified by the FDA that we believe would be applicable for 5i drugs. We believe this list would serve as a guide that manufacturers would use to determine if a drug could be considered as a 5i drug. We are proposing to add § 447.507 Identification of 5i drugs to indicate how 5i drugs are to be identified. In § 447.507(a) we propose to use the FDA's Routes of Administration as a guide to identify 5i drugs. Below is a list of FDA routes of administration that we are proposing manufacturers use to identify 5i drugs. It includes, but is not limited to, the routes of administration listed in Table 3. This list comes from the FDA Structured Product Labeling, Route of Administration data standards located at http://www.fda.gov/ForIndustry/DataStandards/StructuredProductLabeling/ucm162034.htm.

Table 3—Routes of Administration for 5i Identification Auricular (Otic) Intracavernous Conjunctival Intracavitary Endocervical Intracerebral Endosinusial Intracisternal Endotracheal Intracorneal Epidural Intracoronal, Dental Extra-Amniotic Intracoronary Hemodialysis Intracorporus Cavernosum Infiltration Intradermal Interstitial Intradiscal Intra-Abdominal Intraductal Intra-Amniotic Intraduodenal Intra-Arterial Intradural Intra-Articular Intraepicardial Intrabiliary Intraepidermal Intrabronchial Intraesophageal Intrabursal Intragastric Intracardiac Intragingival Intracartilaginous Intrahepatic Intracaudal Intraileal Intralesional Iontophoresis Intralingual Irrigation Intraluminal Laryngeal Intralymphatic Nasal Intramammary Nasogastric Intramedullary Ophthalmic Intrameningeal Parenteral Intramuscular Percutaneous Intranodal Periarticular Intraocular Peridural Intraomentum Perineural Intraovarian Periodontal Intrapericardial Rectal Intraperitoneal Respiratory (Inhalation) Intrapleural Retrobulbar Intraprostatic Soft Tissue Intrapulmo

esis Intralingual Irrigation Intraluminal Laryngeal Intralymphatic Nasal Intramammary Nasogastric Intramedullary Ophthalmic Intrameningeal Parenteral Intramuscular Percutaneous Intranodal Periarticular Intraocular Peridural Intraomentum Perineural Intraovarian Periodontal Intrapericardial Rectal Intraperitoneal Respiratory (Inhalation) Intrapleural Retrobulbar Intraprostatic Soft Tissue Intrapulmonary Subarachnoid Intraruminal Subconjunctival Intrasinal Subcutaneous Intraspinal Subgingival Intrasynovial Submucosal Intratendinous Subretinal Intratesticular Transendocardial Intrathecal Transmucosal Intrathoractic Transplacental Intratubular Transtracheal Intratumor Transtympanic Intratympanic Ureteral Intrauterine Urethral Intravascular Vaginal Intravenous Intraventricular Intravesical Intravitreal We propose that manufacturers identify 5i drugs based upon the FDA route of administration list that we have provided. We are interested in comments on this proposal, including comments regarding other FDA routes of administration that could be used to identify 5i drugs that are not reflected on the provided list.

We believe that by utilizing the FDA route of administration, manufacturers will be readily able to identify products which are inhaled, infused, instilled, implanted, and injected as the information is readily available. However, manufacturers would need to determine if those products identified as 5i drugs are “not generally dispensed through a retail community pharmacy”. Therefore, we also considered how to establish a standard by which manufacturers would determine when a drug is “not generally dispensed through a retail community pharmacy.”

. Therefore, we also considered how to establish a standard by which manufacturers would determine when a drug is “not generally dispensed through a retail community pharmacy.”

We considered adopting the Medicare Part B guidelines used to determine if a drug is to be classified as self-administered as a way to determine when a drug is “not generally dispensed” through a retail community pharmacy. In accordance with section 1861(s)(2)(A) and 1861(s)(2)(B) of the Act, the Medicare Benefit Policy Manual, Chapter 15—Covered Medical and Other Services, § 50.2(C) provides guidance regarding the term “usually.” Specifically, it provides that the term is used to mean more than 50 percent of the time in determining when a drug is to be classified as self-administered. In light of this guidance, we believe that if a drug can be self administered, it is reasonable to assume that it is usually dispensed through a retail community pharmacy; however, for physician-administered drugs, we believe it is reasonable to conclude that the drug may be provided by physicians or other licensed practitioner in a variety of entities (such as clinics and physician's offices), and given the nature of the drugs, are usually not dispensed by a retail community pharmacy.

If we were to adopt a similar 50 percent methodology for determining when a drug is not generally dispensed through a retail community pharmacy, it would mean that a drug would be classified as “not generally dispensed” through a retail community pharmacy if more than 50 percent of the sales were to an entity other than a wholesaler for distribution to retail community pharmacies or retail community pharmacies that purchase drugs directly from the manufacturer. We believe that if we were to adopt a 50 percent methodology, some 5i drugs which are self-administered and generally dispensed through retail community pharmacies would be included in the alternate 5i AMP calculation due to the breadth of the percentage allowed in this calculation methodology

l community pharmacies or retail community pharmacies that purchase drugs directly from the manufacturer. We believe that if we were to adopt a 50 percent methodology, some 5i drugs which are self-administered and generally dispensed through retail community pharmacies would be included in the alternate 5i AMP calculation due to the breadth of the percentage allowed in this calculation methodology.

We also considered whether we could use the methodology commonly used by manufacturers to calculate the Department of Veterans Affairs (DVA) non-Federal Average Manufacturer Price (non-FAMP). This methodology is described in the draft “Amended Master Agreement”, 2 between the Secretary of Veterans Affairs and the Manufacturer in section VII of this Agreement. Manufacturers, manufacturer associations, pharmacies and pharmacy associations have repeatedly referred to this draft “Amended Master Agreement” when requesting guidance from CMS on the issue of defining “not generally dispensed”. According to the definition of Wholesaler found in the draft “Amended Master Agreement,” manufacturers are to consider a buyer to be a wholesaler when drugs with unit sales of 90 percent or greater are to retailers, other merchants, industrial, institutional or commercial users. Manufacturers are responsible for using this 90 percent principle as a guideline to determine when their sales are to wholesalers in their determination of non-FAMP. We considered whether it would be reasonable to apply the same principle to 5i drug determinations as to when a drug is “not generally dispensed” through a retail community pharmacy. We considered adopting a similar 90 percent principle because the definition of AMP, as specified in section 1927(k)(1)(B) of the Act, as revised by the Affordable Care Act, reflects sales to wholesalers for drugs distributed to retail community pharmacies (and retail community pharmacies that purchase drugs directly from the manufacturer)

generally dispensed” through a retail community pharmacy. We considered adopting a similar 90 percent principle because the definition of AMP, as specified in section 1927(k)(1)(B) of the Act, as revised by the Affordable Care Act, reflects sales to wholesalers for drugs distributed to retail community pharmacies (and retail community pharmacies that purchase drugs directly from the manufacturer). Therefore, for 5i drugs, our understanding of the 90 percent principle would be that if 90 percent or more of the manufacturer's sales for the respective drug were to an entity other than a wholesaler for distribution to retail community pharmacies or retail community pharmacies that purchase drugs directly from the manufacturer, then the drug would be classified as “not generally dispensed” through a retail community pharmacy.

2 While the Amended Master Agreement (9/7/00 draft) between the Secretary of Veterans Affairs and the Manufacturer Identified in Section VIII of this Agreement has not been finalized and is therefore not an official DVA document, it is our understanding that it is still utilized by those in the industry when determining non-FAMP.

We believe providing a quantitative method to determine when a drug is “not generally dispensed” through a retail community pharmacy would be preferable to a more qualitative drug specific approach as it provides a more definitive meaning to the term “not generally dispensed” through a retail community pharmacy. Therefore, in this proposed rule, we propose at § 447.507(b)(1) to use the 90 percent principle to determine when a drug is not generally dispensed through a retail community pharmacy

through a retail community pharmacy would be preferable to a more qualitative drug specific approach as it provides a more definitive meaning to the term “not generally dispensed” through a retail community pharmacy. Therefore, in this proposed rule, we propose at § 447.507(b)(1) to use the 90 percent principle to determine when a drug is not generally dispensed through a retail community pharmacy. However, we continue to have some concerns regarding whether the 90 percent threshold is reasonable because it might result in a portion of drugs eligible for

We further propose at § 447.504(d) that, in light of section 1927(k)(1)(B)(i)(IV) of the Act, AMP for these drugs will include all sales, rebates, discounts, or other financial transactions already proposed for inclusion in the determination of AMP as well as the sales, rebates, discounts, or other transactions concerning these drugs, that are provided to the following non-retail community pharmacy entities:

• Direct sales to physicians.

• Sales to pharmacy benefit managers, including their mail order pharmacy's purchases.

• Sales to HMOs, including MCOs.

• Sales, discounts, or rebates paid directly to insurers.

• Sales to hospitals.

• Sales to clinics and outpatient facilities.

• Sales to mail order pharmacies.

• Sales to long-term care providers, including nursing facility pharmacies, nursing home pharmacies, long-term care facilities, contract pharmacies for the nursing facility where these sales can be identified with adequate documentation, and other entities where the drugs are dispensed through a nursing facility pharmacy, such as assisted living facilities.

• Sales to hospices.

• Sales to other manufacturers who conduct business as wholesalers or retail community pharmacies.

7. Further Clarification on the Calculation of AMP—§ 447.504(e)

he nursing facility where these sales can be identified with adequate documentation, and other entities where the drugs are dispensed through a nursing facility pharmacy, such as assisted living facilities.

• Sales to hospices.

• Sales to other manufacturers who conduct business as wholesalers or retail community pharmacies.

7. Further Clarification on the Calculation of AMP—§ 447.504(e)

a. Chargebacks and Other Discounts (§ 447.504(e)(1))

We propose that chargebacks must be included in the calculation of AMP, except for those chargebacks provided to any of the entities that are excluded from the determination of AMP. Inasmuch as we believe chargebacks are based on identified sales to a specific entity, a manufacturer cannot make assumptions regarding these chargebacks and must identify them to included or excluded AMP sales. Additionally, we propose that AMP is to include cash discounts except customary prompt pay discounts extended to wholesalers, free goods that are contingent on any purchase requirement, volume discounts, incentives, administrative fees, service fees (other than bona fide service fees), distribution fees, and any other rebates, discounts or other financial transaction, other than rebates under section 1927 of the Act, which reduce the price received by the manufacturer for drugs distributed to retail community pharmacies.

b. Quarterly AMP (§ 447.504(e)(2))

Based on prior experience and on the MDR program submissions we believe that the quarterly AMP should be calculated as a weighted average of the monthly AMPs in the quarter. We believe that, based on our prior experience and the similarities of both calculations, this approach will minimize discrepancies between the monthly and the quarterly AMPs. Therefore, we propose that quarterly AMP is to be calculated as a weighted average of monthly AMPs in the quarter.

eve that the quarterly AMP should be calculated as a weighted average of the monthly AMPs in the quarter. We believe that, based on our prior experience and the similarities of both calculations, this approach will minimize discrepancies between the monthly and the quarterly AMPs. Therefore, we propose that quarterly AMP is to be calculated as a weighted average of monthly AMPs in the quarter.

c. Manufacturer Adjustments (§ 447.504(e)(3))

To account for discounts, rebates or other price concessions that may not be available during the rebate reporting period, we propose that the manufacturer must adjust the AMP for the applicable rebate period if cumulative discounts, rebates, or other arrangements subsequently adjust the prices actually realized, to the extent that these discounts, rebates or arrangements are not excluded from the determination of AMP by statute or regulation.

D. Determination of Best Price (§ 447.505)

1. Definitions of Best Price and Providers

We are proposing re-codifying the terms “best price” and “Providers” under newly proposed § 447.505(a). Additionally, we are proposing to revise the definition of the term “best price” at newly proposed § 447.505(a) so that it is consistent with the definition of best price found in section 1927(c)(1)(C) of the Act.

2. Prices Included in Best Price

We believe that revising the definition of best price to be consistent with the definition provided in the statute provides sufficient detail as to which prices are to be included in the determination of best price. Therefore, we further propose the “Prices included in best price,” currently located in regulations at § 447.505(c)(1)-(11), be redesignated to § 447.505(b) and that it would be revised to remove the list of prices included in best price

to be consistent with the definition provided in the statute provides sufficient detail as to which prices are to be included in the determination of best price. Therefore, we further propose the “Prices included in best price,” currently located in regulations at § 447.505(c)(1)-(11), be redesignated to § 447.505(b) and that it would be revised to remove the list of prices included in best price. Instead, the paragraph would read as follows: “Except for those prices identified in paragraph (c) of this section, best price for covered outpatient drugs includes all prices and associated rebates, discounts, or other transactions that adjust prices either directly or indirectly.”

3. AMP Methodology Applied to Best Price

In order to provide consistency between the AMP and best price sections, where applicable, we are proposing to apply the same methodology to best price that we are applying to AMP. This will be accomplished by making the following revisions to the prices exempt from best price section. We propose the “Prices excluded from best price,” currently located in regulations at § 447.505(d)(1)-(13), be redesignated to § 447.505(c)(1)-(18). The current list of prices excluded from best price would be expanded to include three new price exclusions not currently identified in regula

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