Medicaid Program - Covered Outpatient Drugs Fed Reg 2012-2014.pdf

8/14/2019 Medicaid Program - Covered Outpatient Drugs Fed Reg 2012-2014.pdf

1/51

Vol. 77 Thursday,No. 22 February 2, 2012

Part II

Department of Health and Human ServicesCenters for Medicare & Medicaid Services42 CFR Part 447Medicaid Program; Covered Outpatient Drugs; Proposed Rule

VerDate Mar2010 18:25 Feb 01, 2012 Jkt 226001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\02FEP2.SGM 02FEP2

D

K

VN

RODw

RO

O


2/51

5318 Federal Register / Vol. 77, No. 22 / Thursday, February 2, 2012 / Proposed Rules

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Centers for Medicare & MedicaidServices

42 CFR Part 447

[CMS2345P]

RIN 0938AQ41

Medicaid Program; Covered OutpatientDrugs

AGENCY : Centers for Medicare &Medicaid Services (CMS), HHS.ACTION : Proposed rule.

SUMMARY : This proposed rule wouldrevise requirements pertaining toMedicaid reimbursement for coveredoutpatient drugs to implementprovisions of the Patient Protection andAffordable Care Act of 2010, asamended by the Health Care andEducation Reconciliation Act of 2010(collectively known as the AffordableCare Act). This proposed rule wouldalso revise other requirements related tocovered outpatient drugs, including keyaspects of Medicaid coverage, payment,and the drug rebate program. Therefore,we are proposing to amend 42 CFR part447, subpart I to implement specificprovisions of the Affordable Care Act.DATES : To be assured consideration,comments must be received at one ofthe addresses provided below, no laterthan 5 p.m. on April 2, 2012.ADDRESSES : In commenting, please referto file code CMS2345P. Because ofstaff and resource limitations, we cannotaccept comments by facsimile (FAX)transmission.

You may submit comments in one offour ways (please choose only one of theways listed):

1. Electronically. You may submitelectronic comments on this regulationto http://www.regulations.gov. Followthe instructions under the More SearchOptions tab.

2. By regular mail. You may mailwritten comments to the followingaddress ONLY:

Centers for Medicare & MedicaidServices, Department of Health andHuman Services, Attention: CMS2345P, P.O. Box 8016, Baltimore,MD 212448016.Please allow sufficient time for mailed

comments to be received before theclose of the comment period.

3. By express or overnight mail. Youmay send written comments to thefollowing address ONLY:Centers for Medicare & Medicaid

Services, Department of Health and

Human Services, Attention: CMS2345P, Mail Stop C42605, 7500Security Boulevard, Baltimore, MD212441850.4. By hand or courier. If you prefer,

you may deliver (by hand or courier)your written comments before the closeof the comment period to either of thefollowing addresses:

a. For delivery in Washington, DCCenters for Medicare & Medicaid

Services, Department of Health andHuman Services, Room 445G, HubertH. Humphrey Building, 200Independence Avenue SW.,Washington, DC 20201.(Because access to the interior of the

Hubert H. Humphrey Building is notreadily available to persons withoutFederal government identification,commenters must leave their commentsin the CMS drop slots located in themain lobby of the building. A stamp-inclock is available for persons wishing toretain a proof of filing by stamping inand retaining an extra copy of thecomments being filed. The commentsdelivered must also be stamped in toverify timeliness of submission.)

b. For delivery in Baltimore, MDCenters for Medicare & Medicaid

Services, Department of Health andHuman Services, 7500 SecurityBoulevard, Baltimore, MD 212441850.If you intend to deliver your

comments to the Baltimore address,please call telephone number (410) 786

7195 in advance to schedule yourarrival with one of our staff members.Comments mailed to the addresses

indicated as appropriate for hand orcourier delivery may be delayed and ifreceived after the comment periodcloses may not be considered.

Submission of comments on paperwork requirements. You maysubmit comments on this documentspaperwork requirements by followingthe instructions at the end of theCollection of InformationRequirements section in thisdocument.

For information on viewing publiccomments, see the beginning of theSUPPLEMENTARY INFORMATION section.FOR FURTHER INFORMATION CONTACT :Angel Davis, (410) 7864693, and

Meagan Khau, (410) 7861357, forissues related to rebates for lineextensions.

Lisa Ferrandi, (410) 7865445, for issuesrelated to the Collection ofInformation Requirements.

Joseph Fine, (410) 7862128, for issuesrelated to the determination of BestPrice, definition of covered outpatient

drug and rebates for drugs dispensed by Medicaid managed careorganizations.

Christine Hinds, (410) 7864578,Kimberly Howell, (410) 7866762,Terry Simananda, (410) 7868144, orWendy Tuttle, (410) 7868690, forissues related to the determination ofAverage Manufacturer Price (AMP).

Meagan Khau, (410) 7861357, forissues related to the offset of rebates.

Madlyn Kruh, (410) 7863239, for issuesrelated to authorized generics,nominal price, investigational drugs,and the coverage of tobacco cessationdrugs under the Medicaid State Plan.

Bernadette Leeds, (410) 7869463, forissues related to drug rebates.

Gail Sexton, (410) 7864583, for issuesrelated to Federal upper limits.

Marge Watchorn, (410) 7864361, forissues related to the RegulatoryImpact Analysis.

Wendy Tuttle, (410) 7868690, for all

other inquiries.SUPPLEMENTARY INFORMATION :Inspection of Public Comments: All

comments received before the close ofthe comment period are available forviewing by the public, including anypersonally identifiable or confidential

business information that is included ina comment. We post all commentsreceived before the close of thecomment period on the following Website as soon as possible after they have

been received: http:// www.regulations.gov. Follow the searchinstructions on that Web site to viewpublic comments.

Comments received timely will also be available for public inspection asthey are received, generally beginningapproximately 3 weeks after publicationof a document, at the headquarters ofthe Centers for Medicare & MedicaidServices, 7500 Security Boulevard,Baltimore, Maryland 21244, Mondaythrough Friday of each week from8:30 a.m. to 4 p.m. To schedule anappointment to view public comments,phone 1(800) 7433951.

I. Background

A. IntroductionUnder the Medicaid program, States

may provide coverage of outpatientdrugs as an optional service undersection 1905(a)(12) of the SocialSecurity Act (the Act). Section 1903(a)of the Act provides for Federal financialparticipation (FFP) in Stateexpenditures for these drugs. In general,in order for payment to be madeavailable under section 1903 for coveredoutpatient drugs, manufacturers mustenter into a Medicaid drug rebateagreement as set forth in section 1927(a)


D

K

VN

RODw

RO

O
http://www.regulations.gov/http://www.regulations.gov/http://www.regulations.gov/http://www.regulations.gov/http://www.regulations.gov/http://www.regulations.gov/


3/51

5319Federal Register / Vol. 77, No. 22 / Thursday, February 2, 2012 / Proposed Rules

of the Act. Section 1927 of the Actprovides specific requirements forrebate agreements, drug pricingsubmission and confidentialityrequirements, the formulas forcalculating rebate payments, andrequirements for States for coveredoutpatient drugs.

This proposed rule would implementchanges to section 1927 of the Act made by sections 2501, 2503, and 3301(d)(2)of the Patient Protection and AffordableCare Act of 2010 (Pub. L. 111148,enacted on March 23, 2010), andsections 1101(c) and 1206 of the HealthCare and Education Reconciliation Actof 2010 (HCERA) (Pub. L. 111152,enacted on March 30, 2010),(collectively known as the AffordableCare Act). It would also implementchanges to section 1927 of the Act as setforth in section 202 of Pub. L. 111226,enacted on August 10, 2010 (referred toas the Education Jobs and Medicaid

Funding Act). This proposed rule wouldimplement other miscellaneousprovisions pertaining to coveredoutpatient drugs. It would implementchanges to section 1927 of the Act as setforth in section 221 of Division F, TitleII, of the Omnibus Appropriations Act,2009, (Pub. L. 1118, enacted on March11, 2009). It would also codify otherrequirements in section 1927 of the Actpertaining to the Medicaid drug rebate(MDR) program and revise certainregulatory provisions presently codifiedat 42 CFR part 447, subpart I and makeother changes concerning rebaterequirements. As discussed below, theseproposed revisions are consistent withthe Secretarys authority set forth insection 1102 of the Act to publishregulations that are necessary to theefficient administration of the Medicaidprogram.B. Changes Made by the Affordable CareAct

Section 2501(a) of the Affordable CareAct amended section 1927(c) of the Act

by increasing the minimum rebatepercentage for most single source andinnovator multiple source drugs from15.1 percent of the average

manufacturer price (AMP) to 23.1percent of AMP. Section 2501(a) of theAffordable Care Act also amendedsection 1927(c) of the Act byestablishing a minimum rebatepercentage of 17.1 percent of AMP forcertain single source and innovatormultiple source clotting factors andsingle source and innovator multiplesource drugs approved by the Food andDrug Administration (FDA) exclusivelyfor pediatric indications. Section2501(a) of the Affordable Care Act alsoadded section 1927(b)(1)(C) to the Act to

make changes to the non-Federal shareof rebates by specifying that theamounts attributable to the increasedrebate percentages be remitted to theFederal government. The amendmentsmade by section 2501(a) of theAffordable 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 fornoninnovator multiple source drugsfrom 11 percent of AMP to 13 percentof AMP, effective January 1, 2010.

Section 2501(c) of the Affordable CareAct amended section 1903(m) of the Act

by specifying new conditions formanaged care organization (MCO)contracts, including that coveredoutpatient drugs dispensed toindividuals eligible for medicalassistance under Title XIX of the Actwho are enrolled with a Medicaid MCOshall be subject to the same rebaterequired by the rebate agreementauthorized under section 1927 of theAct. The Affordable Care Act alsoamended section 1903(m) of the Act toestablish that MCO capitation rates shall

be based on actual cost experiencerelated to rebates and subject to Federalregulations at 438.6 regarding actuarialsoundness of capitation payments. Thelegislation also provided that MCOs areresponsible for reporting to the Statecertain utilization data and such otherdata as the Secretary determinesnecessary for the State to access therebates authorized by this provision.

Section 2501(c) of the Affordable CareAct also made conforming amendmentsto section 1927(b) of the Act byrequiring manufacturers that participatein the MDR program to provide rebatesfor drugs dispensed to individualsenrolled with a MCO, if the MCO isresponsible for coverage of such drugs.It also amended section 1927(b) of theAct by requiring States to includeinformation on drugs paid for byMedicaid MCOs under the State planduring the rebate period whenrequesting rebates from manufacturers.Finally, section 2501(c) modifiedsection 1927(j)(1) of the Act to specify

that covered outpatient drugs are notsubject to the rebate requirements ifsuch drugs are both subject to discountsunder section 340B of the Public HealthService Act (PHSA) and dispensed byhealth maintenance organizations(HMOs), including Medicaid MCOs. Theamendments made by section 2501(c)were effective March 23, 2010.

Section 2501(d) of the Affordable CareAct, as revised by section 1206(a) ofHCERA, added a new subparagraph (C)to section 1927(c)(2) of the Act, effectivefor drugs paid for by a State on or after

January 1, 2010. This provision modifiesthe unit rebate amount (URA)calculation for a drug that is a lineextension (new formulation) of a singlesource or innovator multiple sourcedrug that is an oral solid dosage form.

Section 2501(e) of the Affordable CareAct amended section 1927(c)(2) of theAct by adding a new subparagraph (D)and establishing a maximum on thetotal rebate amount for each singlesource or innovator multiple sourcedrug at 100 percent of AMP, effective

January 1, 2010.Section 2501(f) of the Affordable Care

Act made conforming amendments tosection 340B of the Public HealthService Act, which are not addressed inthis proposed rule.

Section 2503(a) of the Affordable CareAct amended section 1927(e) of the Act

by revising the Federal upperreimbursement limit to be no less than175 percent of the weighted average(determined on the basis of utilization)of the most recently reported monthlyAMPs for pharmaceutically andtherapeutically equivalent multiplesource drug products that are availablefor purchase by retail communitypharmacies on a nationwide basis.Additionally, it specifies that theSecretary shall implement a smoothingprocess for AMP which shall be similarto the smoothing process used indetermining the average sales price(ASP) of a drug or biological underMedicare Part B. It amended section1927(k) of the Act by revising thedefinition of AMP to mean the averageprice paid to the manufacturer for thedrug in the United States by wholesalersfor drugs distributed to retailcommunity pharmacies and retailcommunity pharmacies that purchasedrugs directly from the manufacturer.

It also amended the definition ofmultiple source drug to specify, in part,that a covered outpatient drug qualifiesas a multiple source drug if at least oneother therapeutically equivalent drugproduct is sold or marketed in theUnited States, as opposed to in a State,during the rebate period. It added tosection 1927(k) of the Act definitions of

retail community pharmacy andwholesaler for purposes of section 1927of the Act.

Section 2503(b) of the Affordable CareAct amended section 1927(b) of the Act

by establishing a requirement thatmanufacturers report, not later than 30days after the last day of each month ofa rebate period under the agreement, onthe manufacturers total number of unitsthat are used to calculate the monthlyAMP for each covered outpatient drug.It also amended the preexistingrequirement that the Secretary disclose


D

K

VN

RODw

RO

O


4/51


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.

AMPs to instead require the Secretary topost, on a Web site accessible to thepublic, the weighted average of the mostrecently reported monthly AMPs andthe average retail survey pricedetermined for each multiple sourcedrug in accordance with section 1927(f)of the Act.

Section 2503(c) of the Affordable CareAct amended section 1927(f) of the Act by clarifying that the survey of retailprices described in such subsectionapplies to retail community pharmacies.

Section 2503(d) of the Affordable CareAct specified that the amendmentsmade by section 2503 of the AffordableCare Act were effective October 1, 2010.Section 2503(d) of the Affordable CareAct further specified that theamendments made by section 2503 shalltake effect without regard to whetherfinal regulations to carry out suchamendments have been issued byOctober 1, 2010.

Section 3301(d)(2) of the AffordableCare Act included a conformingamendment to the definition of bestprice under Medicaid at section1927(c)(1)(C) of the Act. Thisamendment provides that any discountsprovided by manufacturers under theMedicare coverage gap discountprogram under section 1860D14A ofthe Act are exempt from amanufacturers best price calculation,effective for drugs dispensed on or after

July 1, 2010.Section 7101(a) of the Affordable Care

Act expanded the drug discountprogram under section 340B of thePublic Health Service Act (PHSA) toinclude certain childrens hospitals,freestanding cancer hospitals, criticalaccess hospitals, rural referral centersand sole community hospitals.

Section 204 of the Medicare andMedicaid Extenders Act of 2010 (Pub. L.111309) revised section 340B of thePHSA by removing childrens hospitalsfrom the orphan drug exclusiondescribed in section 2302 of HCERA.

Section 1101(c) of HCERA alsoincludes a conforming amendment tothe definition of AMP under Medicaidat section 1927(k) of the Act by

providing that discounts provided bymanufacturers under the Medicarecoverage gap discount program undersection 1860D14A of the Act areexcluded from a manufacturersdetermination of AMP, effective March30, 2010.C. Final Rule With Comment PeriodPublished July 17, 2007

On July 17, 2007, CMS published afinal rule with comment period in theFederal Register (72 FR 39142). Thepurpose of the final rule with comment

period was to finalize the provisions ofthe proposed rule CMS published in theFederal Register on December 22, 2006(71 FR 77174) and to allow for furtherpublic comment on the AMP andFederal upper limit (FUL) outliersections of the final rule. We received avariety of comments from drugmanufacturers, membershiporganizations, wholesalers, law firms,PBMs, consulting firms and pharmacistsin support of, and raising concerns with,the AMP and FUL provisions. However,we note that these regulatory provisionswere withdrawn through the final rulepublished in the November 15, 2010Federal Register (75 FR 69591).Accordingly, we will not be consideringthe comments received on the July 17,2007, rule in this rulemaking document.Further, because the Affordable CareAct made substantial changes to theAMP and FUL provisions in section1927 of the Act, we no longer expect to

publish that final rule and we do notexpect to address those comments insubsequent rulemaking.D. Other Changes Concerning theMedicaid Drug Rebate Program

We are also proposing changes toaddress other program issues related tocovered outpatient drugs, including keyaspects of Medicaid payment and theMDR program, such as reimbursementto pharmacies for the ingredient cost ofa drug, determination of AMP forauthorized generic drugs, and theinclusion of territories in the MDRprogram. These changes are described ingreater detail below under section II.Provisions of the Proposed Regulations.II. Provisions of the ProposedRegulations

This proposed rule would reviseregulations concerning the MDRprogram, set forth at section 1927 of theAct. It implements, consistent with ourgeneral rulemaking authority, sections2501, 2503, and 3301(d)(2) of theAffordable Care Act and sections1101(c) and 1206 of HCERA, whichrevise requirements concerning therebate program and payments for

prescription drugs under the Medicaidprogram. The specific provisions wepropose are described in detail below.A. Basis and Purpose (447.500)

Section 2501(c) of the Affordable CareAct established new requirements formanufacturers that participate in theMDR program to pay rebates for drugsdispensed to individuals enrolled witha Medicaid MCO if the MCO isresponsible 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 theAct as the basis for rebates for coveredoutpatient drugs dispensed toindividuals eligible for medicalassistance who are enrolled in MedicaidMCOs. We propose to add 447.500(a)(5) which would add section1902(a)(30)(A) as an additional basis forcalculating payments for coveredoutpatient drugs.B. Definitions (447.502)

1. Actual Acquisition CostStates generally reimburse pharmacies

for covered outpatient drugs that areprescribed and dispensed to Medicaid

beneficiaries based on a two-partformula, which addresses the ingredientcost of a drug and a reasonabledispensing fee. Each State has theflexibility to determine the amount itwill reimburse for each component ofthe formula based on the agencys bestestimate of the price generally andcurrently paid by providers for a drugmarketed or sold by a particular druglabeler and the cost associated withensuring that possession of theappropriate covered outpatient drug istransferred to a Medicaid beneficiary.These reimbursement formulas aresubject to review and approval by CMSthrough the State plan amendment(SPA) process.

In general, States currently reimbursefor the covered outpatient drug based, inpart, on the estimated acquisition cost(EAC). The EAC, as currently defined inFederal regulations at 447.502 is the

agencys best estimate of the pricegenerally and currently paid byproviders for a drug marketed or sold bya particular manufacturer or labeler inthe package size of drug most frequentlypurchased by providers. We areproposing to both rename and revisethis definition in this proposed rule.

Section 1902(a)(30)(A) of the Actrequires, in part, that States havemethods and procedures to assure thatpayment for Medicaid care and servicesis consistent with efficiency, economy,and quality of care. In accordance withthese provisions and in light of the OIGreports concerning published prices(OIG Audit reportsA060000023,A060100053, A060200041), 1 we

believe it is necessary for States to havea more accurate reference price to basereimbursement for prescription drugs.Therefore, we propose to replace theterm, estimated acquisition cost withactual acquisition cost (AAC). We

believe that changing this definition for


D

K

VN

RODw

RO

O
http://oig.hhs.gov/oas/reports/region6/60000023.htmhttp://oig.hhs.gov/oas/reports/region6/60000023.htmhttp://oig.hhs.gov/oas/reports/region6/60100053.htmhttp://oig.hhs.gov/oas/reports/region6/60100053.htmhttp://oig.hhs.gov/oas/reports/region6/60200041.htmhttp://oig.hhs.gov/oas/reports/region6/60200041.htmhttp://oig.hhs.gov/oas/reports/region6/60200041.htmhttp://oig.hhs.gov/oas/reports/region6/60200041.htmhttp://oig.hhs.gov/oas/reports/region6/60100053.htmhttp://oig.hhs.gov/oas/reports/region6/60100053.htmhttp://oig.hhs.gov/oas/reports/region6/60000023.htmhttp://oig.hhs.gov/oas/reports/region6/60000023.htm


5/51


the drug ingredient component of thereimbursement formula to AAC will bemore reflective of actual prices paid, asopposed to estimates based onunreliable published compendiapricing. While we recognize that Statesmay not be able to determine the actualprice of each individual drug, payment

based on an average of the actualacquisition costs from a number ofrepresentative pharmacies would still fitwithin this definition, as data used inthe calculation of the averageacquisition cost would be reflective ofactual purchase prices for pharmacyproviders. Within this framework, Statescan develop payment methodologiesconsistent with this regulatorydefinition for their Medicaid pharmacyreimbursement. Therefore, in 447.502,we propose to define actual acquisitioncost as the agencys determination of theactual prices paid by pharmacyproviders to acquire drug products

marketed or sold by specificmanufacturers. This issue and itspossible effects on ingredient costreimbursement is discussed further in

both 447.512 Drugs: Aggregate upperlimits of payment and 447.518 Stateplan requirements, findings, andassurances.2. Authorized Generic Drug

The definition of authorized genericdrug, presently set forth in 447.506(a), applies to rebatecalculations, as set forth in subpart IPayment for Drugs. Therefore, wepropose to remove the definition ofAuthorized generic drug from 447.506 and move this definition to 447.502. We would continue to definethe term Authorized generics drugs asany drug sold, licensed or marketedunder an NDA approved by the FDAunder section 505(c) of the Federal FoodDrug and Cosmetic Act (FFDCA) that ismarketed, sold or distributed under adifferent labeler code, product code,trade name, trademark, or packaging(other than repackaging the listed drugfor use in institutions) than the listed

brand drug.For purposes of the MDR Program, an

authorized generic is any drug productmarketed under the innovator or brandmanufacturers New Drug Application(NDA) approved under section 505(c) ofthe FFDCA, but labeled with a differentNDC than the innovator or brandproduct. Authorized generics arecategorized as innovator multiple sourcedrugs for the purpose of computing thedrug rebate.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 thatrepresent fair market value for a bonafide, itemized service actuallyperformed on behalf of the manufacturerthat the manufacturer would otherwiseperform (or contract for) in the absenceof the service arrangement and that arenot passed on in whole or in part to aclient or customer of an entity, whetheror not the entity takes title to the drug.The Affordable Care Act specifies thatthe AMP shall exclude bona fide servicefees paid by manufacturers towholesalers or retail communitypharmacies including, but not limitedto, distribution service fees, inventorymanagement fees, product stockingallowances, and fees associated withadministrative service agreements andpatient care programs (such asmedication compliance programs andpatient education programs). In 447.502, we propose to revise ourcurrent definition of bona fide service

fees to include these fees paid bymanufacturers to wholesalers or retailcommunity pharmacies.

4. Bundled SalesIn the AMP final rule published on

July 17, 2007, bundled sale was definedas an arrangement, regardless ofphysical packaging, under which therebate, discount, or other priceconcession is conditioned upon thepurchase of the same drug, drugs ofdifferent types (that is, at the nine-digitNational Drug Code (NDC) level) oranother product or some otherperformance requirement (for example,the achievement of market share,inclusion or tier placement on aformulary), or where the resultingdiscounts or other price concessions aregreater than those which would have

been available had the bundled drugs been purchased separately or outsidethe bundled arrangement. For bundledsales, the discounts are allocatedproportionally to the total dollar valueof the units of all drugs sold under the

bundled arrangement. For bundled saleswhere multiple drugs are discounted,the aggregate value of all the discountsin the bundled arrangement must be

proportionally allocated across all thedrugs in the bundle. In response tomanufacturer questions regardingwhether a discount and resulting pricefor each product in a single customercontract that is independent and notcontingent on the discount or pricing ofany other product in the contract should

be applied across all products; we statedpreviously that where a discount orprice concession is establishedindependently and not conditionedupon any other purchase orperformance requirement (for example

the achievement of market share,inclusion or tier placement on aformulary), or where the discount is notgreater than if purchased outside ofmulti-product arrangement, there is no

bundle within the meaning described in 447.502. Though this is not addressedin the Affordable Care Act, we continueto agree with our response to this issueand thus have decided to include it inthis discussion in order to further clarifythe bundled sale definition. Therefore,we propose to add the followingclarifying statement to the definition of

bundled sale: The discounts in a bundled sale, including but not limitedto those discounts resulting from acontingent arrangement, are allocatedproportionally to the total dollar valueof the units of all drugs sold under the

bundled arrangement.

5. Clotting Factor

The Affordable Care Act established a

minimum rebate percentage of 17.1percent of AMP for a single source drugor an innovator multiple source drugthat is a clotting factor for which aseparate furnishing payment isauthorized under section 1842(o)(5) ofthe Act and which is included on a listof such factors specified and updatedregularly by the Secretary. Consistentwith these provisions, we propose todefine clotting factors as those drugs orproducts for which a separate furnishingpayment is authorized under section1842(o)(5) of the Act and which areincluded on a list of such factors

specified and updated quarterly byCMS.

6. Covered Outpatient Drug

In accordance with section 1927 ofthe Act, manufacturers that haveentered into a Rebate Agreement withthe Secretary are responsible for payingrebates to States for their coveredoutpatient drugs for which payment has

been made under the state plan.Manufacturers are responsible forsubmitting required drug product data,including each drugs NDC. This NDCinformation is placed on the MDR fileand used for assuring compliance withthe statutory requirements.

There have been products identifiedin the drug product data file that do notmeet the definition of a coveredoutpatient drug. Therefore, we believe itis necessary to provide clarificationregarding the definition of a coveredoutpatient drug in section 1927(k)(2) ofthe Act and the limiting definition atsection 1927(k)(3) of the Act.Accordingly, we propose to add adefinition of covered outpatient drug to 447.502.


D

K

VN

RODw

RO

O


6/51


We propose that a drug is considereda covered outpatient drug when thedrug may be dispensed only uponprescription (except as discussed belowwith respect to certain non-prescriptiondrugs), and it meets the followingcriteria as described in section1927(k)(2) of the Act:

The drug has been approved forsafety and effectiveness as aprescription drug by the FDA undersection 505 or 507 of the FFDCA wherethe manufacturer has obtained a NDA orunder section 505(j) of the FFDCAwhere the manufacturer has obtained anAbbreviated New Drug Application(ANDA);

The drug was commercially used orsold in the United States before the dateof the enactment of the DrugAmendments of 1962, or is identical,similar or related (within the meaning ofsection 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 theSecretary that it is a new drug (withinthe meaning of section 201(p) of theFederal Food, Drug, and Cosmetic Act)or an action brought by the Secretaryunder section 301, 302(a), or 304(a) ofsuch Act to enforce section 502(f) or505(a) of such Act;

The drug is one which is describedin section 107(c)(3) of the DrugAmendments of 1962 and for which theSecretary has determined there is acompelling justification for its medicalneed or is identical, similar, or relatedto such a drug and for which theSecretary has not issued a notice for anopportunity for a hearing under section505(e) of the FFDCA on a proposedorder of the Secretary to withdrawapproval of an application for such drugunder the FFDCA because the Secretaryhas determined that the drug is less thaneffective for some or all conditions ofuse prescribed, recommended orsuggested in its labeling;

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

(1) May only be dispensed uponprescription,

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

(3) Is produced at an establishmentlicensed under such section to producesuch product; or

The drug is insulin certified undersection 506 of the FFDCA.

Consistent with section 1927(k)(3) ofthe Act, we propose that, except asdiscussed below, a drug, biologicalproduct, or insulin would not beconsidered a covered outpatient drugwhen that drug or product is billed asa bundled service with, and provided aspart of or incident to and in the samesetting as, any of the following services:

Inpatient Hospital Services; Hospice Services; Dental Services, except that drugs

for which the State plan authorizesdirect reimbursement to the dispensingdentist are covered outpatient drugs;

Physician services; Outpatient hospital services; Nursing facility and services

provided by an intermediate carefacility for the mentally retarded; Other laboratory and x-ray services;

or Renal dialysis.We further propose that the above

exemptions to the definition of coveredoutpatient drug for combined serviceswould not apply if the drug is carvedout and billed separately from theservice (for example, an infusion drugand x-ray are billed separately, not as acomposite radiology service; therefore,the infusion drug is a covered outpatientdrug).

Additionally, section 1927(k)(3) of theAct provides that the definition ofcovered outpatient drug does notinclude any such drug or product forwhich a NDC number is not required bythe FDA or a drug or biological used fora medical indication which is not amedically accepted indication. We notethat for the purposes of the MDR we usean NDC format at either the NDC9,which includes the labeler code andproduct code, to identify the productinformation, or the NDC11, whichincludes the labeler code, product code,and the package code, to identify theproducts package information. We are

aware that FDA has a slightly differentNDC format than what is used in theMDR program. (Please see thediscussion under the definition of NDC.)For the purpose of the MDR program,we will continue to use the current NDCformat of NDC9, which includes thelabeler code and the product code, toidentify the product information andNDC11, which includes the labelercode, product code, and package code,to identify the products packageinformation. However, if there is changeto the current NDC format as a result ofFDA action, then we will issue

guidance, as necessary, to notify thepublic as well as to explain its impacton the MDR program.

We are not involved with and do nothave oversight for the designation of theNDC. The FDA requires NDCs for drugsthat must be listed with the FDA inaccordance with Federal Food, Drug,and Cosmetics Act (FFDCA), asamended by the Food and DrugAdministration Amendments Act of2007 (FDAAA) (Pub. L. 11085). (21CFR 207.25(b)(8)). The FDAAAamended section 510(p) of the FFDCA

(21 U.S.C 360) to explicitly require thatregistration and listing information(including the submission of updatedinformation) required under section 510of the FFDCA, which includesinformation from both domestic andforeign establishments, be submitted byelectronic means, unless the Secretaryof Health and Human Services grants arequest for waiver of this requirement

because use of electronic means is notreasonable for the person requesting thewaiver.

Section 1927(k)(3) of the Act providesthat a covered outpatient drug does notinclude any such drug or product forwhich an NDC number is not required

by the FDA. However, in accordancewith section 1927(k)(2), and therequirements of section 510 of theFFDCA, we propose that a drug,whether prescription or over-the-counter (OTC), would only be treated asa covered outpatient drug if the drug is

both required to have an NDC and islisted electronically with the FDA. We believe this additional standard isneeded to ensure compliance with theprescribed drug provisions, FDAapproval provisions, and the NDClisting provisions. Furthermore, thisproposal is necessary in order for us toassure compliance with the drug rebatesubmission requirements, for CMS toverify State utilization data andmanufacturer product data, and toassure the correct calculation of theoffset amounts mandated by theAffordable Care Act. Additionally, thisproposal aligns with a proposalsubmitted as part of the fiscal year (FY)2012 Presidents Budget to require drugsto be properly listed electronically withthe FDA as a requirement to be coveredunder Medicaid.

Therefore, if a manufacturer isrequired to list all of its NDCselectronically with the FDA, this wouldensure that all the products in the MDRprogram meet the definition of section1927(k)(3) of the Act. In addition, itwould permit us to verify State andmanufacturer submissions byreferencing the FDAs electronic druglisting information.

Manufacturers are required to updatetheir registration and listing informationelectronically in accordance with FDAscurrent registration and listingrequirements.

Additionally, in order for us to fullyimplement these provisions, we arerequiring that manufacturers submit anyrelevant approved FDA applicationnumbers. When a product is listed withthe FDA, the manufacturer is required toprovide to the FDA the NDC and theapplication number, if any, for theproduct (21 CFR 207.25(b)). An


D

K

VN

RODw

RO

O


7/51


application number will help CMS findinformation on the approval status tomarket a drug. See http://www.fda.gov/ Drugs/InformationOnDrugs/ ucm079436.htm. The applicationnumber assists CMS in obtaininginformation from FDA as to whether adrug has been approved under a NDAunder section 505 of FFDCA or anANDA under section 505(j) of FFDCA.This information is critical to thedefinition of a covered outpatient drugunder section 1927(k)(2) of the Act.Under the MDR program reportingrequirements, drug manufacturers arerequired to report to CMS a drugcategory for each NDC. The drugcategory represents whether an NDC isclassified as a brand name drug (singlesource drug (S) or innovator multiplesource drug (I)) or a generic drug(noninnovator multiple source drug(N)). We use these drug categoryindications to determine the appropriate

rebate percentage to calculate the unitrebate amounts, as well as the offsetamounts under the Affordable Care Act.

We are also aware that some productsthat do not have an approvedapplication number may be coveredoutpatient drugs. For example, we

believe that certain products, such asprenatal prescription vitamins,potassium chloride, codeine sulfate, andhydrocortisone acetate may fall into thiscategory. If a product does not have anFDA application number, in order to beconsidered a covered outpatient drug,the manufacturer must provide evidencedemonstrating that its products meet thestatutory definition of a coveredoutpatient drug under section 1927(k)(2)to 1927(k)(4). We will refer to thisevidence of demonstration as coveredoutpatient drug status, or COD status.We are seeking public comments on thisrequirement, and in particular,comments identifying drugs or classesof drugs that do not have approvedapplications but should be deemedcovered outpatient drugs.

This submission of data wouldprovide critical information needed tocalculate and verify the accuracy ofsuch drug information.

Therefore, we propose thatmanufacturers report to CMS thenumber of an approved FDA applicationfor a product or otherwise show that theproduct meets the statutory definition ofa covered outpatient drug undersections 1927(k)(2) and (3) of the Act, inorder for CMS to calculate the offsetamounts and validate product data toensure the correct rebate calculation foreach NDC in the MDR Program. Byhaving a correct approved FDAapplication number or the COD status,CMS can more accurately determine the

unit rebate amounts and productclassification, critical to the rebatepercentage calculation.7. Customary Prompt Pay Discounts

In 447.502, we propose to add adefinition of customary prompt paydiscount to ensure consistentapplication of such discounts among

manufacturers when calculating AMP.Therefore, we propose to definecustomary prompt pay discounts as anydiscount off of the purchase price of adrug routinely offered by themanufacturer to a wholesaler for promptpayment of purchased drugs within atimeframe that is consistent with itscustomary business practices forpayment.8. Innovator Multiple Source Drug

As currently defined in 447.502, aninnovator multiple source drug means amultiple source drug that was originallymarketed under an original new drugapplication (NDA) approved by theFDA, including an authorized genericdrug. It also includes a drug productmarketed by any cross-licensedproducers, labelers, or distributorsoperating under the NDA and a coveredoutpatient drug approved under aproduct license approval (PLA),establishment license approval (ELA), orantibiotic drug approval (ADA). In thisrule, we propose to add multiple sourcedrugs originally marketed under a BLAas the BLA approval process is asuccessor to the PLA and ELA and drugssold under a BLA are explicitly

referenced in the definition of singlesource drug. To ensure that the correctdrug category is reported for aninnovator multiple source drug, as wasdiscussed in Manufacturer Release #82,we wish to remind manufacturers, as isconsistent with current policy, that aninnovator multiple source (I) drugshould be reported to CMS for a brandname drug that has therapeuticequivalents available. To determine iftherapeutic equivalents are available fora brand name drug or not, you canaccess the FDAs Drugs@FDA at http:// www.accessdata.fda.gov/scripts/cder/

drugsatfda/index.cfm? fuseaction=Search.Addlsearch _ drug _name and search by the ApplicationNumber. If therapeutic equivalents areavailable, then you will see the link toTherapeutic Equivalents in theDrugs Details page. If there aretherapeutic equivalents available for theNDA or BLA, then the brand name drugshould be reported as an innovatormultiple source drug (I) to CMS.

Additionally, over the course of theMDR program, questions have arisenregarding whether an original NDA is

the same as an NDA and whether thedrug category may be different if a drugis approved under an NDA. We areproposing to clarify that, for purposes ofthe MDR program, an original NDA isequivalent to an NDA filed by themanufacturer for approval under section505 of the FFDCA for purposes ofapproval by the FDA for safety andeffectiveness. In light of this definition,we are also proposing to use the termNDA when addressing suchapplication types for brand name drugsand not use the term original NDAwhen referring to such drugs throughoutthis proposed rule.9. Line Extension Drug (NewFormulation)

The Affordable Care Act established aseparate calculation for the unit rebateamount for a drug that is a lineextension of a single source drug or aninnovator multiple source drug that isan oral solid dosage form. Section1927(c)(2)(C) of the Act, added bysection 2501(d) of the Affordable CareAct, defines line extension to mean anew formulation of a drug, such as anextended release formulation. Wepropose to define line extension as asingle source or innovator multiplesource drug that is an oral solid dosageform that has been approved by theFDA, listed in D rugs@FDA http://www.accessdata.fda.gov/scripts/cder/ drugsatfda/application file, as a changeto the initial brand name listed drug inthat it represents a new version of thepreviously approved listed drug, such asa new ester, a new salt or othernoncovalent derivative; a newformulation of a previously approveddrug; a new combination of two or moredrugs; or a new indication for an alreadymarketed drug. We propose thatregardless of whether the drug isapproved under an NDA or asupplemental NDA, if the change to thedrug is assigned to one of the abovechanges, it will be considered a lineextension drug.

These modifications to the initial brand name listed drug are oftenapproved under section 505(b)(2) of the

FFDCA. A section 505(b)(2) applicationis a new drug application submittedunder section 505(b)(1) and approvedunder section 505(c) of the FFDCA. Asection 505(b)(2) application is one forwhich one or more of the investigationsrelied upon by the applicant to showwhether a drug is safe and effectivewere not conducted by or for theapplicant and for which the applicanthas not obtained a right of reference oruse from the person by or for whom theinvestigations were conducted. Section505(b)(2), as described in FDA


D

K

VN

RODw

RO

O
http://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htmhttp://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htmhttp://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htmmailto:Drugs@FDAhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namemailto:Drugs@FDAhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/applicationhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/applicationhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/applicationmailto:Drugs@FDAmailto:Drugs@FDAhttp://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htmhttp://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htmhttp://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htmhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/applicationhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/applicationhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/applicationhttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_namehttp://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_name


8/51


regulations at 21 CFR 314.54, may beused in certain circumstances to seekapproval of a drug product thatrepresents a modification to a listeddrug product. Examples of drugs thathave been approved under the 505(b)(2)application include drugs with a newformulation, dosing regimen, change inactive ingredient (such as a different saltor ester, combination product), and/ornew drug indication. These types ofdrugs are assigned a Chemical Type bythe FDA for the new drug application.A section 505(b)(2) application may begranted 3 years of exclusivity, may beeligible for orphan drug exclusivity orpediatric exclusivity. We have includedthese changes within our definition ofline extension drugs. (See G.2.Treatment of New Formulations forfurther explanation of CMS proposal.)

10. ManufacturerFor purposes of the MDR Program, we

propose to clarify our current definitionof manufacturer by revising it to statethat a manufacturer means any entitythat holds the NDC for a coveredoutpatient drug or biological product.This change in terminology is notintended change the scope of thedefinition.

11. Multiple Source DrugOn November 15, 2010, we published

the Medicaid Program; Withdrawal ofDetermination of Average ManufacturerPrice, Multiple Source Drug Definition,and Upper Limits for Multiple SourceDrugs final rule in the Federal Register(75 FR 69591). That final rule withdrewthe regulatory definition of multiplesource drug. As previously noted,section 2503(a)(3) of the Affordable CareAct amended the definition of multiplesource drug set forth in section1927(k)(7) of the Act.

Therefore, in accordance with section1927(k)(7) of the Act, as revised, wepropose to define multiple source drugin 447.502 as a covered outpatientdrug for which there is at least one otherdrug product which

(1) Is rated as therapeuticallyequivalent. For the list of drug productsrated as therapeutically equivalent, wewill use the FDAs most recentpublication of Approved DrugProducts with Therapeutic EquivalenceEvaluations which is currentlyavailable at http://www.fda.gov/cder/ orange/default.htm or which can beviewed at the FDAs Freedom of

Information Public Reading Room at5600 Fishers Lane, Rm. 12A30,Rockville, MD 20857;

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

(3) Is sold or marketed in the UnitedStates during the rebate period.12. National Drug Code

The Drug Listing Act of 1972 requireseach registered drug establishment toprovide the FDA with a current list ofall drugs manufactured, prepared,propagated, compounded, or processed

by it for commercial distribution. (Seesection 510 of the FFDCA (21 U.S.C.360)). Drug products are identified andlisted with FDA using a uniqueidentifier called the National Drug Code(NDC). Under FDA regulations in 21CFR part 207, the NDC is identified asa 10-digit, 3-segment number. The firstsegment, the labeler code, is assigned bythe FDA. A labeler is a firm thatmanufactures the drug, including arepacker or relabeler, or a firm thatdistributes the drug under its own tradename or label. The second segment, theproduct code, identifies a specificstrength, dosage form, and formulationfor a particular firm. The third segment,the package code, identifies the tradepackage size and type. Both the productand package codes are assigned by thefirm. The NDC will be in one of thefollowing configurations: 442, 532,or 541.

In this proposed rule, we clarify thateven though FDA currently uses a

unique 10-digit NDC, for the purposes ofthe MDR program and this subpart wewill continue to use an NDC format withthe NDC9, which includes the labelercode and the product code, to identifythe product information and the NDC11, which includes the labeler code,product code, and package code, toidentify the products packageinformation. Manufacturers may includea leading zero in the product code or thepackage code segments of the NDC inorder to arrive at the 54 NDC9 or 542 NDC11 when reporting theirproduct to the MDR program.

13. Noninnovator Multiple Source DrugAs currently defined in 447.502, a

noninnovator multiple source drugmeans: (1) A multiple source drug thatis not an innovator multiple source drugor a single source drug, (2) a multiplesource drug that is marketed under anabbreviated NDA (ANDA) or an

abbreviated antibiotic drug application,and (3) a drug that entered the market

before 1962 that was not originallymarketed under an NDA.

In addition to a noninnovatormultiple source drug as described,currently, there are other drugs on themarket that have not gone through theFDA approval process, including butnot limited to certain prescription pre-natal vitamins.

Therefore, we propose to amend thedefinition of a noninnovator multiplesource drug to also include these otherdrugs that have not gone through FDAapproval process but otherwise meet thedefinition of covered outpatient drug.However, if any of the drug productslisted in this amended definition of anoninnovator multiple source drugsubsequently receives a new NDA orANDA approval from the FDA, themanufacturer must change the reportingof the products drug category tocorrelate with the new productapplication type and furnish theappropriate information.

We also propose to amend thedefinition of noninnovator multiplesource drug to clarify that for purposesof Medicaid payment and rebatecalculations, the term shall includenoninnovator drugs that are nottherapeutically equivalent.

14. Oral Solid Dosage Form

CMS proposes to interpret oral soliddosage form in accordance to the FDAregulation at 21 CFR 206.3, whichdefines solid oral dosage form to meancapsules, tablets, or similar drugproducts intended for oral use. We alsoclarify that although FDA regulations at21 CFR 206.3 uses the term solid oraldosage form, section 1927(c)(2)(C)specifically used the term oral soliddosage form in reference to thetreatment of new formulations.Therefore, CMS will treat the term oralsolid dosage form to mean the same asFDAs solid oral dosage form.

CMS proposes to further interpret anoral route of administration as any drugthat is intended to be taken by mouth.In accordance with these provisions,CMS is providing manufacturers withguidance in order to assist them indetermining which drugs should beconsidered as oral solid dosage forms(please see Table 1). This list will beupdated based on any changes to theFDAs definition of solid dosage forms.


D

K

VN

RODw

RO

O
http://www.fda.gov/cder/orange/default.htmhttp://www.fda.gov/cder/orange/default.htmhttp://www.fda.gov/cder/orange/default.htmhttp://www.fda.gov/cder/orange/default.htm


9/51


TABLE 1LIST OF ORAL S OLID DOSAGE FORMS

Bar, Chewable CapsuleCapsule (Immediate/Complete Release) (Hard Or Soft Gelatin,

Chewable Or Perle)Capsule, Coated

Capsule, Coated (Hard Or Soft Gelatin) Capsule, Coated PelletsCapsule, Coated, Extended Release Capsule, Delayed Action (Hard Or Gelatin, Coated, Enteric Coated)Capsule, Delayed Release Pellets Capsule, Enteric Coated PelletsCapsule, Extended Release Capsule, Film Coated (Hard Gelatin)Capsule, Film Coated, Extended Release Capsule, Gelatin CoatedCapsule, Hard Gelatin Capsule, Liquid FilledCapsule, Repeat Action Capsule, Soft GelatinCapsule, Soft Gelatin Liquid-Filled Capsule, Sustained Action (Hard Or Soft Gelatin, Coated, Film Coated)Dispersible TabletGranule, Delayed Release Granule, Enteric CoatedGum (Chewing, Medicated) LollipopLozenge Pellet, Coated, Extended ReleaseTablet Tablet (Immediate/Complete Release) (Coated, Film Coated, Sugar

Coated, Multilayer, Uncoated, Buccal, Chewable)Tablet, Chewable Tablet, CoatedTablet, Coated Particles Tablet, Controlled ReleaseTablet, Delayed Action (Coated, Enteric Coated) Tablet, Delayed ReleaseTablet, Delayed Release Particles Tablet, DispersibleTablet, Enteric Coated Particles Tablet, Extended ReleaseTablet, Film Coated Tablet, Film Coated, Extended ReleaseTablet, Multilayer (Coated, Film Coated) Tablet, Multilayer, Extended ReleaseTablet, Orally Disintegrating, Delayed Release Tablet, Orally DisintegratingTablet, Repeat Action (Coated) Tablet, SolubleTablet, Sugar Coated Tablet, Sustained Action (Coated, Film Coated, Multilayer, Uncoated)Tablet, Sustained Release, Film Coated Tablet, Uncoated, LozengeTablet, Uncoated, Lozenge, Lypophilized Tablet, Uncoated, TrocheTablet, Sustained Action, Membrane Controlled PastilleTroche/Lozenge Wafer

CMS would not consider thefollowing as oral solid dosage forms

because these dosage forms are intendedto be made into a liquid or suspensionprior to oral consumption.

TABLE 2LIST OF OTHER DOSAGE FORMS

Capsule, for Micro-emulsion

Granule, Effer-vescent, for Solu-tion

Granule Effervescent Tablet, EffervescentGranule, Effer-

vescent, for Solu-tion

Tablet, for Solution

Granule Effervescent,for Suspension

Tablet Effervescentfor Solution

Granule, for Oral Sus-pension

Tablet, for Suspen-sion

15. Over-the-Counter (OTC) Drug

With the exception of certain tobaccocessation drugs for pregnant women, oran EPSDT service, section 1927(d)(2) ofthe Act currently allows States toexclude from coverage or otherwiserestrict coverage of OTC drugs. Wepropose to add a definition of OTCdrugs in order to clarify which productswould be treated as OTC drugs in theMedicaid program. This definition isconsistent with our current policy andwould not change how these drugs aretreated for purposes of coverage underthe Medicaid program. We propose to

define OTC drugs as drugs that areappropriate for use without thesupervision of a health care professionalsuch as a physician, and which can bepurchased by a consumer without aprescription, although for Medicaidcoverage a prescription continues to berequired. OTC drugs may be marketedunder an approved premarketapplication (NDA or ANDA) or in manycases, may be marketed under an OTCmonograph. In some instances, FDApermits these drugs to be marketedunder a monograph that is not yet final(such as where there is an OTC tentativefinal monograph), as stated in 21 CFRpart 330 and FDA guidance. UnlikeNDAs which are based on premarketapproval of specific, finished drugproducts, monographs specify the activeingredients, indications, dosages, andclaims that can be made by the OTC

drug products.16. Pediatric Indications

The Affordable Care Act established aminimum rebate percentage of 17.1percent of AMP for single source andinnovator multiple source drugsapproved by the FDA exclusively forpediatric indications. To implement thisrequirement, we propose to clarifywhich drugs will be subject to thisminimum rebate percentage. Inregulations at 21 CFR 201.57 and 21CFR 201.80, the FDA defines pediatric

use for most drug labeling to mean usefor pediatric populations and pediatricpatients, that is, the pediatric agegroup, from birth to 16 years, includingage groups often called neo-nates,infants, children, and adolescents.Accordingly, given the statutoryamendments, we propose to define adrug approved by the Food and DrugAdministration exclusively for pediatricindications to mean a drug productapproved by the FDA exclusively withindications for pediatric use, with thepediatric age group defined from birthto 16 years. Drugs that are not approvedand labeled exclusively for pediatricuse, that merely reference use inchildren in any part of the labeling, orthat receive a supplemental indicationfor pediatric use, will not qualify for theminimum rebate of 17.1 percent of AMPas specified in section 1927(c)(1)(B)(iii)of the Act. In accordance with thestatute, we propose to apply thisdefinition only to drug products whoseFDA-approved labeling includes onlyindications for children from birth to 16years of age. Drugs without this explicitage labeling will not satisfy therequirement that the drug be approvedexclusively for pediatric use and willnot qualify for the minimum rebate of17.1 percent of AMP. We are proposingto apply such a definition only whenthis specific pediatric age cohort


D

K

VN

RODw

RO

O


10/51


appears in the Indication and Usagesection of the FDA-approved labeling.

17. Professional Dispensing Fee

The definition of dispensing fee willremain unchanged as it alreadyenumerates those costs to dispense adrug that the pharmacy incurs.However, we propose to replace theterm dispensing fee withprofessional dispensing fee as drugingredient cost is only one componentof the two-part formula that Statesgenerally use to reimburse pharmaciesfor prescribed drugs dispensed toMedicaid beneficiaries; and, we feel thatthis change from dispensing fee toprofessional dispensing fee reinforcesour position that once thereimbursement for the drug is properlydetermined, the dispensing fee shouldreflect the pharmacists professionalservices and costs associated withensuring that possession of the

appropriate covered outpatient drug istransferred to a Medicaid beneficiary.Therefore, as States change theirpayment for ingredient cost, we alsopropose to require States to reconsiderthe dispensing fee methodologyconsistent with the revisedrequirements.

18. Single Source Drug

As currently defined in 447.502, asingle source drug means a coveredoutpatient drug that is produced ordistributed under an NDA approved bythe FDA, including a drug product

marketed by any cross-licensedproducers or distributors operatingunder the NDA. It also includes acovered outpatient drug approved undera BLA, PLA, ELA, or ADA.

As previously stated in the discussionof the proposed changes to thedefinition of innovator multiple sourcedrug, for purposes of the MDR program,we have defined an original NDA as anNDA filed by the manufacturer with theFDA for purposes of approval for safetyand effectiveness. Further, we wish toremind a manufacturer that as long as ithas an approved NDA number issued by

the FDA, a drug is considered to be asingle source drug and is required to bereported with as an S drug categoryto CMS under the MDR program unlessthere are FDA approved therapeuticequivalents. To determine if therapeuticequivalents are available, you can accessthe FDAs Drugs@FDA and search by theApplication Number. If therapeuticequivalents are available for the NDA,then you will see the link toTherapeutic Equivalents in theDrugs Details page. If there are notherapeutic equivalents available for the

NDA, then the brand name drug should be reported as an S to CMS.

19. States

Currently, for purposes of thissubpart, the term States is defined asthe 50 States and the District ofColumbia. However, excluding the

territories from this definition of Statesprevents them from receivingmanufacturer rebates through the MDRprogram. We recognize that theterritories have, over the years,expressed an interest in participating inthe MDR program and that such rebateswould in part offset the costs ofproviding Medicaid drugs. We havedecided, in accordance with section1101(a)(1) of the Act, to proposerevising the definition of States toinclude the 50 States, the District ofColumbia, and the territories (theCommonwealth of Puerto Rico, the

Virgin Islands, Guam, the NorthernMariana Islands and American Samoa).Therefore, for drug rebates, we believeit is in the best interests of the Medicaidprogram to include the territories in thedefinition of States so that they mayachieve the savings that drug rebatesprovide and we propose that thedefinition of States should be revisedaccordingly. We also acknowledge thatthere may be concerns with theterritories participating in the MDRprogram; therefore, we requestcomments regarding the inclusion of theterritories in the definition of States.

20. United States

Similar to our review of the termStates, we also examined our use ofthe term United States. As with theterm States, we defined United Statesonly to mean the 50 States and theDistrict of Columbia. However, section1101(a)(2) of the Act provides that whenused in a geographic sense, the termUnited States means, except whereotherwise provided, the States. Inaccordance with this definition, wethink it is reasonable to conclude that inthis context, the term is used in thegeographical sense in that itcontemplates the sales of drugs in anyof the States. (Please see section II.K.Upper limits for multiple source drugs( 447.514) of the preamble for furtherdiscussion on the sale of drugs on anationwide basis.) Therefore, for thepurposes of this subpart, we propose, inaccordance with section 1101(a) of theAct, to define the United States tomean the 50 States plus the District ofColumbia and the territories asdescribed above.

21. WholesalerThe Affordable Care Act added a

definition of the term wholesaler atsection 1927(k)(11) of the Act. Wepropose to adopt that definition anddefine wholesaler to mean a drugwholesaler that is engaged in wholesaledistribution of prescription drugs toretail community pharmacies, including(but not limited to) manufacturers,repackers, distributors, own-labeldistributors, private-label distributors,jobbers, brokers, warehouses (includingmanufacturers and distributorswarehouses, chain drug warehouses,and wholesale drug warehouses),independent wholesale drug traders,and retail community pharmacies thatconduct wholesale distributions.

We are not proposing that awholesaler be licensed by the Stateinasmuch as that is not a requirement ofthe Act, in comparison to the definitionof retail community pharmacy, where

State licensing is required. Inconsidering how to clarify this term, wereviewed the definition of wholesaledistributor, that appears in section510(g) of the FFDCA, and regulations at21 CFR 807.3(s), which provide that theterm wholesale distributor meansany person (other than themanufacturer or the initial importer)who distributes a device from theoriginal place of manufacture to theperson who makes the final delivery orsale of the device to the ultimateconsumer or user. While this definitionis helpful, it does not provide additionalclarity to the definition in the Act.Therefore, we are proposing to definewholesaler as set forth in the Act, butare specifically seeking comment onfurther data sources or definitions wecould apply here that would help tofurther clarify the term wholesaler.C. Determination of AverageManufacturer Price (447.504)

1. AMP Historical BackgroundThe Omnibus Budget Reconciliation

Act of 1990 (OBRA 90) (Pub. L. 101508) added section 1927 to the Act,which became effective on January 1,1991. OBRA 90 established the MDRprogram and defined the AMP withrespect to a covered outpatient drug ofa manufacturer for a rebate period as theaverage unit price paid to themanufacturer for the drug in the UnitedStates by wholesalers for drugsdistributed to the retail pharmacy classof trade. Manufacturers who enteredinto and had in effect a rebate agreementwith CMS were required to report AMPon a quarterly basis. The AMP was usedto calculate the rebates paid bymanufacturers to the States for drugs


D

K

VN

RODw

RO

O
mailto:Drugs@FDAmailto:Drugs@FDA


11/51


dispensed to their Medicaid beneficiaries.

The Deficit Reduction Act of 2005(DRA) made significant changes to theMedicaid prescription drug provisionsof the Act. The DRA amended section1927(k)(1) of the Act to revise thedefinition of AMP to exclude customaryprompt pay discounts to wholesalers,effective January 1, 2007. The DRAdefined AMP, in part, to mean, withrespect to a covered outpatient drug ofa manufacturer for a calendar quarter,the average price paid to themanufacturer for the drug in the UnitedStates by wholesalers for drugsdistributed to the retail pharmacy classof trade.

Section 6001(c)(3) of the DRArequired the Office of Inspector General(OIG) to review the requirements for andmanner in which AMP was to bedetermined and recommend changes tothe Secretary by June 1, 2006. Section

6001(c)(3) of the DRA also required theSecretary to clarify the requirements forand the manner in which AMPs aredetermined by promulgating aregulation no later than July 1, 2007,taking into consideration the OIGsrecommendation.

In May 2006, the OIG issued a report,Determining Average ManufacturerPrices for Prescription Drugs under theDeficit Reduction Act of 2005. In thisreport the OIG recommended that CMS:

Clarify the requirements in regardsto the definition of retail pharmacy classof trade and treatment of pharmacy

benefit manager (PBM) rebates andMedicaid 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 theSecretary direct CMS to:

Issue guidance in the near futurethat specifically addresses theimplementation of the AMP-related

reimbursement provisions of the DRA;and Encourage States to analyze the

relationship between AMP andpharmacy acquisition cost to ensure thatthe Medicaid Program appropriatelyreimburses pharmacies for estimatedacquisition costs.

At that time, we recognized that therehad been concerns expressed by the OIGand GAO in several prior reportsregarding AMP because ofinconsistencies in the waymanufacturers determine AMP, changes

in the marketplace, and the introductionof newer business practices such aspayment of services fees. We alsorealized that, in light of the DRAamendments, AMP would serve twodistinct purposes: determining rebates,and serving as the basis for establishingthe FUL for multiple source drugs. Asa result of a preliminary injunction thathad been entered in a lawsuitchallenging the definition of AMP, CMShad never used the AMP final rule as a

basis for calculating FULs.Following the enactment of the

Affordable Care Act, in the November15, 2010 Federal Register (75 FR69591), Withdrawal of Determinationof Average Manufacturer Price, MultipleSource Drug Definition, and UpperLimits for Multiple Source Drugs, wewithdrew 447.504 Determination ofAMP from the AMP final rulefollowing a period of notice andcomment on the proposed withdrawal.

2. AMP Under the Affordable Care ActOn March 23, 2010, the Affordable

Care Act was enacted. As noted above,section 2503 of the Affordable Care Actrevised the definition of AMP. TheAffordable Care Act was furtheramended by section 202 of theEducation Jobs and Medicaid FundingAct (Pub. L. 111226), which wasenacted on August 10, 2010.

For the determination of AMP, theAffordable Care Act revises thedefinition in section 1927(k) of the Actto eliminate the term retail pharmacyclass of trade and adds a definition of

the term retail community pharmacy,as well as wholesaler. It identifiesspecific entities drug manufacturers areto include and exclude from thedetermination of AMP and (as amended

by Pub. L. 111226) clarifies exceptionsto the excluded entities for inhalation,infusion, instilled, implanted, orinjectable drugs that are not generallydispensed through a retail communitypharmacy.

In this proposed rule, we propose anew 447.504 Determination of AMP,which would be based on section1927(k)(1) of the Act as amended by the

Affordable Care Act. Below we providea detailed discussion of the proposeddefinition of retail communitypharmacy, other terms used in thedetermination of AMP, the entitiesproposed for inclusion and exclusionfrom AMP, and our proposed policyregarding the treatment of inhalation,infusion, instilled, implanted, orinjectable drugs (also referred to as 5idrugs, defined in proposed 447.507),that are not generally dispensed througha retail community pharmacy in thedetermination of AMP.

These provisions of the AffordableCare Act became effective on October 1,2010 without regard to whether finalregulations to carry out the provisionshave been promulgated. Section2503(a)(2) of the Affordable Care Actrevised the definition of AMP to mean,for a covered outpatient drug of amanufacturer for a rebate period, theaverage price paid to the manufacturerfor the drug in the United States bywholesalers for drugs distributed toretail community pharmacies, and byretail community pharmacies thatpurchase drugs directly from themanufacturer.

In accordance with section1927(k)(1)(B)(i) of the Act, as amended

by section 2503(a)(2)(B) of theAffordable Care Act, drug manufacturersare to exclude the following from thedetermination of the AMP:

Customary prompt pay discountsextended to wholesalers;

Bona fide service fees paid bymanufacturers to wholesalers or retailcommunity pharmacies, including (butnot limited to) distribution service fees,inventory management fees, productstocking allowances, and fees associatedwith administrative services agreementsand patient care programs (such asmedication compliance programs andpatient education programs);

Reimbursement by manufacturersfor recalled, damaged, expired, orotherwise unsalable returned goods,including (but not limited to)reimbursement for the cost of goods andany reimbursement of costs associatedwith return goods handling andprocessing, reverse logistics, and drugdestruction;

Payments received from, andrebates or discounts provided to, PBMs,managed care organizations, healthmaintenance organizations, insurers,hospitals, clinics, mail orderpharmacies, long term care providers,manufacturers, or any other entity thatdoes not conduct business as awholesaler or retail communitypharmacy, unless the drug is aninhalation, infusion, instilled,implanted, or injectable drug that is not

generally dispensed through a retailcommunity pharmacy. Discounts provided by

manufacturers under the MedicareCoverage Gap Discount Program (section1860D14A of the Act).

Section 1927(k)(1)(B)(ii) of the Actspecifies that, notwithstanding section1927(k)(1)(B)(i) of the Act,manufacturers are to include in thedetermination of AMP for a coveredoutpatient drug any other discounts,rebates, payments, or other financialtransactions that are received by, paid


D

K

VN

RODw

RO

O


12/51


by, or passed through to retailcommunity pharmacies.

How AMP is defined and what salesare included in the determination ofAMP affects manufacturers, pharmacygroups, the Federal and Stategovernments and Medicaid

beneficiaries, and often there arecompeting interests at play. Theprovisions of the Affordable Care Actregarding AMP serve two distinctpurposes: Determining rebates anddetermining the basis for the FUL formultiple source drugs.

There is a direct relationship betweenwhich entities are to be included andexcluded from AMP calculations andthe basis for determining the FUL formultiple source drugs. The AffordableCare Act defines AMP to include pricespaid to manufacturers by wholesalersfor drugs distributed to retailcommunity pharmacies and by retailcommunity pharmacies that purchasedrugs directly from the manufacturer.These sales are typically at higher pricesthan those of the specifically excludedentities such as the pharmacy benefitmanagers, managed care organizations,health maintenance organizations,insurers, hospitals, clinics, mail orderpharmacies, long term care providers,and manufacturers. AMP calculations

based on those sales to retail communitypharmacies, as opposed to otherpharmacies (such as mail orderpharmacies), would likely result in ahigher AMP value, given that AMPwould be limited to higher priced sales.This higher AMP value would benefitthe retail pharmacy industry because itis likely that the FUL, based on thoseAMPs, would be higher and in turn themaximum pharmacy reimbursement,

based on those FULs, would be higher.On the other hand, a higher AMPwould, in all likelihood, result in higherrebate payments from manufacturers. A

broader definition of AMP, whichwould include sales to entities thatpurchase drugs at lower prices, wouldlikely lower the AMP value, which inturn would lower drug manufacturerrebate liabilities.

AMP values also have an impact on

States and potentially beneficiaries.Increasing AMP values and associatedrebate payments would have a directimpact on State expenditures. However,increasing the FULs would also have adirect impact on State payments. On theother hand, if pharmacy reimbursementrates are too low, then it is conceivablethat some pharmacies may elect not toparticipate in the Medicaid program,which could impact beneficiary accessto pharmacy services. Similarly, Statesand the Federal government have aninterest in assuring an appropriate level

of rebates and beneficiaries access tocare.

3. DefinitionsFollowing is a detailed discussion of

the specific terms associated with AMPcalculations that we propose to define at 447.504(a).

a. Average Unit PriceWe propose to define average unit

price to mean a manufacturers quarterlysales included in AMP less all requiredadjustments divided by the total unitssold and included in AMP by themanufacturer in a quarter. The quarterlysales figure used in this definitionrepresent sales of the drug unit in thelowest identifiable amount (for example,tablet or capsule for solid dosage forms,milliliter for liquid forms, gram forointments or creams) as reported by themanufacturer.

b. Charitable and Not-for-ProfitPharmacies

For the purposes of this subpart, wepropose to define charitable and not-for-profit pharmacies as organizationsdescribed in section 501(c)(3) of theInternal Revenue Code of 1986.

c. InsurersThe DRA amended section

1902(a)(25) of the Act by modifying thedefinition of third parties and healthinsurers to clarify the inclusion of self-insured plans, managed careorganizations, PBMs, or other partiesthat are by statute, contract, oragreement, legally responsible forpayment of a claim for a health careitem or service. Although, the DRAclarified third parties, the AffordableCare Act referenced the term insurerin section 1927(k)(1)(B)(IV) of the Actand provided that payments receivedfrom many of these third partyorganizations (for example, pharmacy

benefit managers, managed careorganizations, health maintenanceorganizations, insurers) be excludedfrom the AMP calculation.

For the purposes of this subpart, wepropose to define insurers as entities

that are responsible for the payment ofdrugs but do not directly purchase drugsfrom manufacturers and are not in thesupply chain to receive delivery of thesedrugs. Instead, insurers are responsiblefor payment to pharmacies for drugsdispensed to their members, and do nottake actual possession of these drugs.

d. Net SalesWe propose to define net sales to

mean quarterly gross sales revenue towholesalers for drugs distributed toretail community pharmacies and retail

community pharmacies that purchasedrugs directly from manufacturers lesscash discounts allowed, and other pricereductions (other than rebates undersection 1927 of the Act or pricereductions specifically excluded bysection 1927 of the Act, or regulationsunder this subpart) which reduce theamount received by the manufacturer.e. Retail Community Pharmacy

The Affordable Care Act eliminatedthe term retail pharmacy class oftrade from the definition of AMP, andadded section 1927(k)(10) of the Act toinclude a definition of the term retailcommunity pharmacy. This changesignificantly narrows the entitiespreviously included in the definition ofretail pharmacy class of trade. Inaccordance with the Act, we propose todefine retail community pharmacy tomean an independent pharmacy, achain pharmacy, a supermarketpharmacy, or a mass merchandiserpharmacy that is licensed as a pharmacy

by the State and that dispensesmedications to the general public atretail prices. We further propose toincorporate the requirement set forth insection 1927(k)(10) of the Act that suchterm does not include a pharmacy thatdispenses prescription medications topatients primarily through the mail,nursing home pharmacies, long-termcare facility pharmacies, hospitalpharmacies, clinics, charitable or not-for-profit pharmacies, governmentpharmacies, or pharmacy benefitmanagers.

Section 1927(k)(1) of the Act asamended by the Affordable Care Actspecifies that manufacturers areresponsible for reporting the AMP basedupon their sales to retail communitypharmacies or wholesalers for drugsdispensed to retail communitypharmacies.

In addition, the statutory provision forthe determination of AMP suggests thereare entities (for example, specialtypharmacies, home infusion pharmacies,and home health care providers), whichare conducting business as wholesalersor retail community pharmacies which

could be included in the determinationof AMP. Section 1927(k)(1)(B)(i)(IV) ofthe Act excludes from the determinationof AMP payments received from andrebates or discounts provided to * * *any other entity that does not conduct

business as a wholesaler or a retailcommunity pharmacy * * *. We

believe that to give the provision somemeaning, the statute contemplates theinclusion of payments and discountsfrom those entities that actually conduct

business as a wholesaler or retailcommunity pharmacy. This


D

K

VN

RODw

RO

O


13/51


interpretation gives meaning to this broad exclusion, and provides for acalculation of AMP consistent with ourreading of the statute. If an entity thatdoes not conduct business as awholesaler or retail communitypharmacy is to be excluded from thedetermination of AMP, we consideredwhether or not it would be reasonableto conclude that payments receivedfrom and rebates or discounts providedto an entity that conducts business as awholesaler or retail communitypharmacy should be included in thedetermination of AMP. Based upon ourunderstanding of the program, certaincovered outpatient drugs may only bedispensed through such entities that areconducting business as wholesalers orretail community pharmacies, such ascertain oral covered outpatient drugsapproved by the FDA requiring a RiskEvaluation and Mitigation Strategy(REMS), to ensure that the benefits of a

drug or biological product outweigh itsrisks. A list of REMS drugs is publicallyaccessible on the FDA Web site athttp://www.fda.gov/Drugs/DrugSafety/ PostmarketDrugSafetyInformationfor PatientsandProviders/ucm111350.htm .

Some REMS drugs are required to bedispensed by specially certifiedpharmacies, resulting in certainmanufacturers utilizing a restrictednetwork of certified specialty and homeinfusion pharmacies, which are notspecifically included in the definition ofretail community pharmacy at section1927(k)(10) of the Act. In addition,

certain oral covered outpatient drugs aredispensed solely through these specialtyand home infusion pharmacies.Therefore, if these entities were to beexcluded from AMP calculations, anAMP would not be available for theseoral covered outpatient drugs. As aresult, manufacturers would not be ableto calculate rebates for these productsand the statutory provisions requiringrebates for such drugs would, inessence, be rendered meaningless. Wedo not believe that the law should beread to create such a result. Section1927(b)(1) of the Act requires that

manufacturers must provide rebates forall of their covered outpatient drugs forwhich payment was made under theState plan. These provisions were notamended by the Affordable Care Act.Therefore, we believe in light of theprovisions of section 1927(k)(1)(B)(i) ofthe Act, there is a basis for allowingsales, rebates, and discounts provided toentities conducting business aswholesalers or retail communitypharmacies to be included in thedetermination of AMP for those drugsfor which an AMP could not otherwise

be calculated. Such an interpretationcontinues to give meaning to the rebateresponsibilities of manufacturers insection 1927(b) of the Act. Therefore, wepropose to include in the determinationof AMP payments received from andrebates or discounts provided to anentity that conducts business as awholesaler or retail communitypharmacy, such as specialty and homeinfusion pharmacies, and homehealthcare providers, since theseentities dispense medications tosegments of the general public at retailprices. We specifically invite commentson this part of the proposed rule.

Manufacturers contend that there isan administrative burden and difficultyin obtaining records assuring that theirsales to wholesalers are distributed toretail community pharmacies. We tooktheir concerns into consideration andconsidered whether or not to proposethat the sales which cannot be definitely

identified as sales to retail communitypharmacies or wholesalers for drugsdispensed to retail communitypharmacies would be eligible forinclusion in the sales thatmanufacturers use for AMPcalculations. We received commentsduring the comment period for theProposed Rule Withdrawal ofDetermination of Average ManufacturerPrice, Multiple Source Drug Definition,and Upper Limits for Multiple SourceDrugs published in the FederalRegister on September 3, 2010 (75 FR54073) that raised issues regarding theimplementation of the new definition ofAMP. As these comments were outsidethe scope of that proposed rule, thesecomments were not specificallyaddressed as part of final rule publishedon November 15, 2010 (75 FR 69591).However, these comments do provideinsight into issues of concern for thevarious stakeholders, especially inregards to the implementation of thenew proposed definition of AMP.

One of the issues raised was whethermanufacturers should be allowed topresume that sales of drugs aredistributed to retail communitypharmacies when those sales of drugs

are to wholesalers that do not furtherdifferentiate their sales among endpurchasers.

Based on information provided fromthese comments it is our understandingthat wholesalers generally resell eitherto manufacturer-contracted customers(which would generate a chargeback orsimilar record), or to other purchaserswith no contract discount arrangementwith the manufacturer. In the case ofsales to wholesalers where nochargeback record is generated,manufacturers contend that they have

minimal to no verifiable informationregarding the final transactions on thiscategory of wholesaler re-sales.Manufacturers have expressed concernthat they would not have adequate dataregarding the wholesalers actualpurchaser to accurately determine if thedrug was ultimately sold to retailcommunity pharmacies. Therefore, weconsidered proposing a so-calledpresumed inclusion policy, where themanufacturer could (absentdocumentation to the contrary) presumethat sales to wholesalers are for drugsdistributed to retail communitypharmacies, without data concerningthat actual distribution. Based upon thecomments we received frommanufacturers we believe such a policywould be consistent with the market

based on the typical chargebackarrangements that manufacturers havein place for institutional and other non-retail community pharmacy purchasers.

The presumed inclusion policy wouldnot require manufacturers to obtain dataregarding the actual distribution to retailcommunity pharmacies. Through thepresumed inclusion policy, in theabsence of chargeback or other verifiabledata, manufacturers would be able topresume that the sales of drugs towholesalers are for drugs that aredistributed to retail communitypharmacies.

However, we recognize that therecould be concerns with respect towhether manufacturers should bepermitted to presume, in the absen

Documents

Medicaid Program - Covered Outpatient Drugs Fed Reg 2012-2014.pdf