This section of the FEDERAL REGISTER

contains regulatory documents having general

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are keyed to and codified in the Code of

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Rules and Regulations Federal Register

51245 

Vol. 76, No. 160 

Thursday, August 18, 2011 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 51 and 602 

[TD 9544] 

RIN 1545–BK34 

Branded Prescription Drug Fee 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Temporary regulations. 

SUMMARY: This document contains 

temporary regulations that provide 

guidance on the annual fee imposed on 

covered entities engaged in the business 

of manufacturing or importing branded 

prescription drugs. This fee was enacted 

by section 9008 of the Patient Protection 

and Affordable Care Act, as amended by 

section 1404 of the Health Care and 

Education Reconciliation Act of 2010. 

The regulations affect persons engaged 

in the business of manufacturing or 

importing certain branded prescription 

drugs. The text of the temporary 

regulations also serves as the text of the 

proposed regulations set forth in the 

notice of proposed rulemaking on this 

subject in the Proposed Rules section of 

this issue of the Federal Register. 

DATES: Effective Date: These regulations 

are effective on August 18, 2011. 

Applicability Date: For dates of 

applicability, see §§ 51.11T and 

51.6302–1T(b). 

FOR FURTHER INFORMATION CONTACT: 

Celia Gabrysh, (202) 622–3130 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

These temporary regulations are being 

issued without prior notice and public 

procedure pursuant to the 

Administrative Procedure Act (5 U.S.C. 

553). For this reason, the collection of 

information contained in these 

regulations has been reviewed and 

pending receipt and evaluation of 

public comments, approved by the 

Office of Management and Budget under 

control number 1545–2209. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless the collection of information 

displays a valid control number. 

For further information concerning 

this collection of information, and 

where to submit comments on the 

collection of information and the 

accuracy of the estimated burden, and 

suggestions for reducing this burden, 

please refer to the preamble to the crossreference notice of proposed rulemaking 

on this subject in the Proposed Rules 

section in this issue of the Federal 

Register. 

Books or records relating to a 

collection of information must be 

retained as long as their contents may 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by 26 

U.S.C. 6103. 

Background 

This document adds the Branded 

Prescription Drug Fee Regulations to the 

Code of Federal Regulations (26 CFR 

Part 51) under section 9008 of the 

Patient Protection and Affordable Care 

Act (ACA), Public Law 111–148 (124 

Stat. 119 (2010)), as amended by section 

1404 of the Health Care and Education 

Reconciliation Act of 2010 (HCERA), 

Public Law 111–152 (124 Stat. 1029 

(2010)). All references in this preamble 

to section 9008 are references to section 

9008 of ACA, as amended by section 

1404 of HCERA. Section 9008 did not 

amend the Internal Revenue Code 

(Code) but cross-references to specified 

Code sections. 

Statutory Provisions 

Section 9008(a) imposes an annual fee 

on each covered entity engaged in the 

business of manufacturing or importing 

branded prescription drugs, to be paid 

not later than the annual date specified 

by the Secretary of the Treasury or his 

delegate (Secretary), but in no event 

later than September 30th of each 

calendar year in which a fee must be 

paid (fee year). 

Section 9008(d)(1) defines a covered 

entity as any manufacturer or importer 

with gross receipts from branded 

prescription drug sales. Section 

9008(d)(2) provides a controlled group 

rule under which all persons treated as 

a single employer under section 52(a), 

52(b), 414(m), or 414(o) of the Code are 

treated as a single covered entity. For 

this purpose, a foreign entity subject to 

tax under section 881 is included within 

a controlled group under section 52(a) 

or 52(b). Under section 9008(d)(3), all 

persons treated as a single employer 

under section 9008(d)(2) are jointly and 

severally liable for the fee. 

Section 9008(e)(2) defines branded 

prescription drug as (i) any prescription 

drug the application for which was 

submitted under section 505(b) of the 

Federal Food, Drug, and Cosmetic Act 

(FFDCA) (21 U.S.C. 355(b)), or (ii) any 

biological product the license for which 

was submitted under section 351(a) of 

the Public Health Service Act (42 U.S.C. 

262(a)). For this purpose, a prescription 

drug is any drug that is subject to 

section 503(b) of the FFDCA (21 U.S.C. 

353(b)). 

Section 9008(b) provides rules for 

determining the amount of the annual 

fee for each covered entity. Under 

section 9008(b)(4), the aggregate fee 

amount each year for all covered entities 

(referred to as the applicable amount) is 

$2.5 billion for fee year 2011; $2.8 

billion for fee years 2012 and 2013; $3 

billion for fee years 2014 through 2016; 

$4 billion for fee year 2017; $4.1 billion 

for fee year 2018; and $2.8 billion for fee 

year 2019 and thereafter. Section 

9008(b)(1) requires the applicable 

amount for each year to be allocated, 

using a specified formula, among 

covered entities with aggregate branded 

prescription drug sales of over $5 

million to specified government 

programs or pursuant to coverage under 

such programs. Section 9008(e)(4) 

provides that the specified government 

programs are the Medicare Part B 

program, the Medicare Part D program, 

the Medicaid program, any program 

under which branded prescription drugs 

are procured by the Department of 

Veterans Affairs, any program under 

which branded prescription drugs are 

procured by the Department of Defense, 

and the TRICARE retail pharmacy 

program (collectively, the Programs). 

Specifically, section 9008(b)(1) 

provides that the annual fee for each 

covered entity is calculated by 

determining the ratio of (i) the covered 

entity’s branded prescription drug sales 

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51246 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 

taken into account during the preceding 

calendar year to (ii) the aggregate 

branded prescription drug sales taken 

into account for all covered entities 

during the same year, and applying this 

ratio to the applicable amount. Sales 

taken into account means branded 

prescription drug sales after the 

application of the percentage 

adjustment table in section 9008(b)(2). 

The sales data is generally to be 

provided by the Centers for Medicare 

and Medicaid Services of the 

Department of Health and Human 

Services (CMS), the Department of 

Veterans Affairs (VA), and the 

Department of Defense (DOD) 

(collectively, the Agencies) pursuant to 

section 9008(g). 

Section 9008(b)(3) requires the 

Secretary to determine the amount of 

each covered entity’s fee and permits 

the Secretary to rely on reports 

submitted by the Agencies and any 

other source of information available to 

the Secretary in determining that 

amount. Section 9008(i) also directs the 

Secretary to publish guidance necessary 

to carry out the purposes of the statute. 

Section 9008(f) treats the fee as an 

excise tax with respect to which only 

civil actions for refunds under the 

provisions of subtitle F of the Code will 

apply. Thus, the fee may be assessed 

and collected using the procedures in 

subtitle F without regard to the 

restrictions on assessment in section 

6213 (relating to petitions to the Tax 

Court). Section 9008(f) also 

characterizes the fee as a nondeductible 

tax under section 275 of the Code. 

IRS Guidance 

On November 29, 2010, the Internal 

Revenue Service (IRS) released Notice 

2010–71 (2010–50 IRB 822), which 

proposed an approach to implementing 

the section 9008 fee and requested 

comments on the proposed approach. 

The proposed approach included an 

opportunity to report certain 

information to the IRS relevant to the 

fee calculation and provided that the 

IRS would provide each covered entity 

with notice of a preliminary fee 

calculation. This notice was modified 

and superseded by Notice 2011–9 

(2011–6 IRB 459), which was released 

on January 14, 2011. 

On April 29, 2011, the IRS released 

Rev. Proc. 2011–24 (2011–20 IRB 787), 

which established a process for covered 

entities to submit claimed errors in their 

preliminary fee calculations for 

consideration before final fee 

calculations for 2011. On May 27, 2011, 

the IRS released Notice 2011–46 (2011– 

25 IRB 887) to defer the due date for 

submission of error reports and the last 

possible date for sending final fee 

calculations for 2011. 

Explanation of Provisions 

The temporary regulations describe 

the rules related to the fee and the 

actions to be taken before the September 

30th due date of each year’s fee. The 

temporary regulations first provide a 

general overview of the rules and then 

provide an explanation of terms used in 

implementing the fee. Next, the 

temporary regulations describe the 

information requested from covered 

entities and provided by the Agencies. 

The temporary regulations then describe 

how the fee is calculated and provide 

for a subsequent adjustment. The 

temporary regulations then provide for 

a notice of the preliminary fee 

calculation, a dispute resolution process 

to allow covered entities to submit error 

reports relating to the preliminary fee 

calculation, and a notice of the final fee 

calculation. The temporary regulations 

also explain how to pay the fee, how the 

fee is treated for tax purposes, and how 

to make refund claims. 

These temporary regulations are 

generally consistent with the approach 

proposed in previous IRS guidance. 

Certain modifications and additions 

were made in response to public 

comments that were received in 

response to the solicitation in Notice 

2011–9. The changes and the public 

comments are discussed in more detail 

in this preamble. 

I. Overview 

The temporary regulations provide 

guidance on the annual fee imposed on 

covered entities engaged in the business 

of manufacturing or importing branded 

prescription drugs by section 9008. 

Generally, each covered entity with 

aggregate branded prescription drug 

sales of over $5 million to the Programs 

(or pursuant to the Programs) is liable 

for an annual fee in each fee year that 

is based on its sales of branded 

prescription drugs in the sales year that 

corresponds to the fee year in an 

amount determined by the IRS under 

these temporary regulations. 

II. Explanation of Terms 

The temporary regulations define 

numerous key terms used in section 

9008 and in these regulations, including 

agencies, branded prescription drug, 

covered entity, fee year, government 

programs, sales taken into account, and 

sales year. Explanations of several terms 

are discussed in more detail in this 

preamble. 

A. Manufacturer or Importer 

Section 9008(d)(1) provides that 

covered entity means any manufacturer 

or importer with gross receipts from 

branded prescription drug sales. 

Consistent with the proposal in 

previous IRS guidance, the temporary 

regulations define a manufacturer or 

importer of a branded prescription drug 

as the person identified in the Labeler 

Code of the National Drug Code (NDC) 

for such a drug. The NDC is an identifier 

assigned by the FDA to a prescription 

drug. The Labeler Code is the first five 

numeric characters of the NDC or the 

first six numeric characters when the 

available five-character code 

combinations are exhausted. 

B. Designated Entity 

Consistent with the proposal in 

previous IRS guidance, the temporary 

regulations provide that, in the case of 

a controlled group that is treated as a 

single covered entity under section 

9008(d)(2), the controlled group may 

identify a person as the designated 

entity that acts for the controlled group 

concerning the section 9008 fee. 

However, the temporary regulations 

further provide that if the controlled 

group, without regard to foreign 

corporations included under section 

9008(d), is also an affiliated group that 

filed a consolidated return for Federal 

income tax purposes, the designated 

entity is the common parent of the 

affiliated group identified on the tax 

return filed for the sales year. If the 

controlled group is not an affiliated 

group that filed a consolidated return 

for Federal income tax purposes, it may 

select a person as the designated entity 

on Form 8947, ‘‘Report of Branded 

Prescription Drug Information.’’ If the 

controlled group does not select a 

person as a designated entity on its 

Form 8947, the IRS will select a person 

as a designated entity for the controlled 

group and advise the filer accordingly. 

C. Orphan Drug Sales 

Section 9008(e)(3) excludes orphan 

drug sales from the definition of 

branded prescription drug sales. 

Consistent with the proposal in 

previous IRS guidance, the temporary 

regulations define orphan drug, subject 

to certain exceptions, as any branded 

prescription drug for which any person 

claimed a section 45C credit and that 

credit was allowed for any taxable year. 

The temporary regulations further 

provide that an orphan drug does not 

include any drug for which there has 

been a final assessment or court order 

disallowing the full section 45C credit 

taken for the drug. Additionally, an 

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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 51247 

orphan drug does not include any drug 

for any sales year after the calendar year 

in which the FDA approved the drug for 

marketing for any indication other than 

the treatment of a rare disease or 

condition for which a section 45C credit 

was allowed, regardless of whether a 

section 45C credit was allowed for the 

drug either before, at the same time, or 

after this FDA approval. 

Several commentators suggested that 

a drug should be considered an orphan 

drug if the section 45C credit was 

‘‘allowable’’; that is, the section 45C 

credit could have been claimed, rather 

than was claimed. Other commentators 

suggested that orphan drug status 

should be given to a drug for which a 

section 45C credit was allowed even 

though the drug had been approved by 

the FDA for marketing for an indication 

other than the treatment of a rare 

disease or condition for which a section 

45C credit was allowed. 

The temporary regulations do not 

adopt these suggestions. The plain 

language of section 9008(e)(3) requires 

the section 45C credit to have actually 

been allowed rather than to have merely 

been allowable. In addition, the 

Treasury Department and the IRS 

interpret section 9008(e)(3) to mean that 

if a drug is ever approved for an 

indication other than the treatment of a 

rare disease or condition for which a 

section 45C credit was allowed, whether 

before, during, or after a section 45C 

credit was allowed for the drug, sales of 

that drug are not considered sales of an 

orphan drug. However, a drug will 

retain its orphan drug status if the drug 

receives approval for a subsequent 

indication for a rare disease or condition 

for which a subsequent section 45C 

credit was allowed. 

III. Information Requested From 

Covered Entities 

Consistent with the proposal in 

previous IRS guidance, the temporary 

regulations give each covered entity the 

opportunity to provide information 

relevant to the determination of the 

section 9008 fee by annually submitting 

Form 8947, ‘‘Report of Branded 

Prescription Drug Information,’’ and 

providing the information specified by 

the form and instructions, including the 

NDCs for branded prescription drugs 

that the covered entity sold to the 

Programs (or pursuant to coverage under 

the Programs), Medicare and Medicaid 

rebate information, section 45C orphan 

drug information, members of 

controlled groups, and designated entity 

information. 

One commentator suggested that the 

Treasury Department and the IRS 

confirm that submission of Form 8947 is 

voluntary. Section 51.3T(a) of the 

temporary regulations provides that a 

covered entity may file a completed 

Form 8947; thus, the submission of 

Form 8947 is voluntary. 

Commentators expressed a preference 

for CMS to include all rebate data in 

their reports to the IRS rather than 

collecting rebate data from the covered 

entities on Form 8947. The IRS and 

CMS are continuing to work on this 

issue. Until CMS can report all the 

relevant rebate data, covered entities 

will continue to have the opportunity to 

submit rebate data as requested on 

Forms 8947 and in the format 

prescribed in the form instructions. 

Several commentators suggested that 

the Treasury Department and the IRS 

provide guidance on how covered 

entities may amend their Form 8947 to 

correct errors or omissions in the 

information reported. A number of 

covered entities notified the IRS of 

corrections to their Forms 8947 in the 

error reports that they submitted as part 

of the dispute resolution process 

provided under Rev. Proc. 2011–24. 

That proved to be an efficient and 

effective way to relay corrections. 

Accordingly, under the temporary 

regulations, a covered entity may notify 

the IRS of any changes or additions to 

information it submitted on Form 8947 

by submitting error reports in the 

dispute resolution process, discussed 

later in this preamble. 

IV. Information Provided by the 

Agencies 

Consistent with the proposal in the 

previous IRS guidance, the temporary 

regulations provide that the IRS will 

(1) compile a list of branded 

prescription drugs by NDC using the 

data submitted on Forms 8947; (2) apply 

appropriate due diligence; and (3) 

provide the Agencies with the list. The 

temporary regulations describe the data 

the Agencies are to provide the IRS 

annually for each NDC on the list by 

Program. The temporary regulations 

further clarify that the IRS may revise 

the list of NDCs as a result of 

information received in the dispute 

resolution process, and that the data the 

IRS uses to produce the final fee 

determination includes any revisions 

provided by the Agencies at the 

completion of the dispute resolution 

process. 

Commentators raised questions about 

the descriptions in previous IRS 

guidance of the methodology used by 

the Agencies to report branded 

prescription drug sales to the IRS and 

asked that these descriptions be 

clarified. In addition, some of the error 

reports submitted as part of the dispute 

resolution process under Rev. Proc. 

2011–24 identified the need for 

clarification in describing Agency data. 

In response to the comments and the 

issues illuminated by the error reports, 

the temporary regulations provide 

revised descriptions of the data and 

computations for some of the Programs. 

Commentators raised questions about 

the methodology proposed for 

computing branded prescription drug 

sales for Medicare Part B. Specifically, 

they questioned the use of Medicareallowed charges to establish the sales 

rather than a computation based on the 

per-unit average sales price (ASP) and 

the units paid for under Medicare Part 

B as specified in section 9008(g)(2). 

Commentators also asked whether CMS 

would use ASP (that is, ASP plus 0%) 

or ASP plus 6% (which reflects amounts 

actually paid) in computing the sales 

figures. After considering the comments, 

CMS refined its calculation process. 

Thus, the temporary regulations provide 

that branded prescription drug sales for 

Medicare Part B will be computed based 

on ASP and units paid for under 

Medicare Part B. 

Commentators also requested 

clarification about how sales will be 

calculated for branded prescription 

drugs that are not separately payable or 

reported. In the unusual situation where 

CMS is unable to establish a reliable 

proportion of sales by NDC, for example 

due to unavailable, inaccurate, or 

incomplete manufacturer sales data, the 

temporary regulations clarify that CMS 

has a back-up method that will use 

Medicare Part D utilization percentages 

in lieu of manufacturer data. It should 

be noted, however, that for the 2011 fee 

calculations, this back-up method was 

not required. 

Commentators also expressed 

concerns about whether Medicare Part B 

is capturing complete data with respect 

to non-separately payable drugs, that is, 

drugs that are not directly correlated 

with a specific HCPCS Code. CMS 

recognizes the commentators’ concern 

and has made extensive efforts to gather 

as complete a data set as possible. CMS 

will continue to work with the data 

available to capture non-separately 

payable drugs. 

Some commentators asked whether 

the sales data from Medicaid reflected 

sales where Medicaid was the secondary 

payer, resulting potentially in duplicate 

reporting where another one of the 

Programs (for example, Medicare Part 

B), was the primary payer. In response, 

CMS has revised the Medicaid 

methodology to exclude non-Medicaid 

payments, and the temporary 

regulations include a description of this 

aspect of the methodology. 

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51248 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 

Commentators asked whether TRICARE 

sales data would be net of refunds and 

rebates associated with specific NDCs. 

The temporary regulations make clear 

that DOD will report for TRICARE the 

sales data for each NDC based on retail 

pharmacy claims submitted during the 

sales year, net of any refunds or rebates. 

Commentators questioned whether the 

VA sales data excluded purchases made 

at individual treatment facilities. The 

VA includes most of its purchases made 

at the individual medical treatment 

facility level in its data because most of 

these purchases are made via VA’s 

Pharmaceutical Prime Vendor. The 

description of VA sales data contained 

in the temporary regulation is revised 

from the description contained in earlier 

guidance to eliminate language 

suggesting that sales at the individual 

medical treatment facility level are not 

included and to clarify that the sales 

data is net of refunds and rebates. 

V. Fee Calculation Including 

Adjustment 

The temporary regulations clarify that 

the IRS will compute the fee for a 

covered entity based on the branded 

prescription drug sales data for each 

NDC reported by the Agencies and any 

rebate data for each NDC reported by the 

covered entities. For purposes of 

computing the fee, each NDC will be 

assigned to the covered entity that owns 

the NDC as of the end of the day on 

December 31st of the sales year. For a 

covered entity that is a controlled group, 

this includes all NDCs that a member of 

the covered entity owns as of the end of 

the day on December 31st of the sales 

year. 

The temporary regulations provide 

that two years are relevant to the 

calculation of the section 9008 fee: The 

fee year, and the calendar year of the 

branded prescription drug sales, which 

will be used to determine the amount of 

the fee (the sales year). As proposed in 

previous IRS guidance, the temporary 

regulations use the second calendar year 

preceding the fee year as the sales year 

for purposes of calculating the section 

9008 fee. The Treasury Department and 

the IRS have determined that, although 

DOD and VA are expected to have 

complete data on branded prescription 

drug sales for the calendar year 

immediately preceding the fee year 

within the time frame necessary to 

administer the fee, CMS is not expected 

to have comparable data because it 

cannot complete its data processing 

within the necessary time frame. 

Accordingly, the IRS will calculate the 

fee based on the branded prescription 

drug sales data provided by the 

Agencies for the second calendar year 

preceding the fee year. Because the use 

of the second preceding year as the sales 

year, rather than the immediately 

preceding year, may affect the amount 

of the fee paid by a covered entity, the 

annual fee due in every year after 2011 

will include an adjustment amount. 

This adjustment amount will be added 

(or subtracted), as appropriate, to (or 

from) the fee otherwise payable by the 

covered entity in the fee year in which 

the adjustment is calculated. 

The proposal in previous guidance 

was to compute the adjustment 

separately for each NDC. Commentators 

raised questions about the effect of the 

adjustment where a drug is owned by 

different covered entities in the second 

preceding year and immediately 

preceding year and asked whether the 

adjustment could be computed at the 

covered entity level rather than the NDC 

level. The Treasury Department and the 

IRS have considered these questions, 

and have decided to calculate the 

adjustment at the covered entity level. 

The adjustment will reflect the 

difference between the fee determined 

for a covered entity in the immediately 

preceding fee year, using data from the 

second calendar year preceding that fee 

year, and what the fee for the covered 

entity would have been for the 

immediately preceding fee year using 

data from the calendar year immediately 

preceding the prior fee year. For 

example, for 2012, the adjustment 

amount for a covered entity will be the 

difference between the 2011 fee 

computed using 2009 sales data, and 

what the 2011 fee would have been 

using 2010 sales data. Although the 

adjustment reflects a revision of the 

prior year’s fee based on data from the 

sales year immediately preceding the 

prior fee year, the adjustment is only 

taken into account by adding it to or 

subtracting it from the fee computed for 

the current fee year. 

VI. Notice of Preliminary Fee 

Calculation 

Consistent with the proposal in the 

previous IRS guidance, the temporary 

regulations provide that the IRS will 

provide each covered entity with a 

notice of preliminary fee calculation 

each year that will include the covered 

entity’s preliminary fee calculation; the 

covered entity’s branded prescription 

drug sales, by NDC, for each Program; 

the covered entity’s branded 

prescription drug sales taken into 

account after application of section 

9008(a)(2); the aggregate branded 

prescription drug sales taken into 

account for all covered entities; after the 

2011 fee year, a preliminary adjustment 

amount; and a reference to the fee 

dispute resolution process set forth in 

guidance published in the Internal 

Revenue Bulletin. The date by which 

the IRS will send the preliminary fee 

calculation notice will be specified for 

future years in guidance published in 

the Internal Revenue Bulletin. For 2011, 

the IRS sent the notices by May 16, 

2011. The Treasury Department and the 

IRS anticipate sending these notices 

earlier in future years. 

VII. Dispute Resolution Process 

Consistent with previous IRS 

guidance, the temporary regulations 

provide for a dispute resolution process 

that allows a covered entity to submit 

error reports in response to the 

preliminary fee calculation for the IRS 

to consider before performing a final fee 

calculation. The temporary regulations 

describe the information that covered 

entities must submit. The IRS will 

specify in guidance published in the 

Internal Revenue Bulletin the format for 

error report submissions and the date by 

which a covered entity must submit an 

error report(s). For 2011, a covered 

entity’s error report was required to be 

submitted no later than June 10, 2011. 

The Treasury Department and the IRS 

anticipate that covered entities will 

have more time to prepare and send 

their error reports to the IRS in future 

years. 

Several commentators requested the 

ability to submit additional error reports 

after the IRS sends notification of the 

final fee determination. In the interest of 

providing finality to the fee calculation 

process, the temporary regulations do 

not adopt this suggestion. 

VIII. Notification and Payment of Fee 

Section 9008(a) provides that the 

annual fee must be paid not later than 

the annual date specified by the 

Secretary, but in no event later than 

September 30th of each fee year. The 

temporary regulations provide that the 

IRS will send each covered entity its 

final fee calculation for that year no 

later than August 31st and that the 

covered entity must pay the fee by 

September 30th by electronic funds 

transfer. For 2011, the IRS will send 

covered entities notification of their 

2011 final fee calculation by August 

24th. This notification will include the 

covered entity’s final fee; the covered 

entity’s branded prescription drug sales 

by NDC for each Program; the covered 

entity’s branded prescription drug sales 

taken into account after application of 

section 9008(a)(2); the aggregate 

branded prescription drug sales taken 

into account for all covered entities; 

after the 2011 fee year, an adjustment 

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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 51249 

amount; and the final determination 

with respect to error reports. 

There is no tax return to be filed for 

the section 9008 fee. 

IX. Tax Treatment of Fee 

Section 9008(f)(1) provides that the 

branded prescription drug fee for 

purposes of subtitle F of the Internal 

Revenue Code shall be treated as an 

excise tax with respect to which only 

civil actions for refund under 

procedures of subtitle F shall apply. 

Thus, under the temporary regulations, 

the section 9008 fee is treated as an 

excise tax for purposes of subtitle F of 

the Code (sections 6001–7874) to which 

the deficiency procedures of sections 

6211–6216 do not apply. The temporary 

regulations provide that the IRS must 

assess the amount of the section 9008 

fee for any fee year within three years 

of September 30th of that fee year. 

X. Refund Claims 

The temporary regulations provide 

that any claim for refund must be filed 

on Form 843, ‘‘Claim for Refund and 

Request for Abatement.’’ 

Availability of IRS Documents 

IRS notices and the revenue 

procedure cited in this preamble are 

published in the Internal Revenue 

Bulletin or Cumulative Bulletin and are 

available at IRS.gov. 

Special Analyses 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 12866, as 

supplemented by Executive Order 

13563. Therefore, a regulatory 

assessment is not required. It also has 

been determined that section 553(b) of 

the Administrative Procedure Act (APA) 

(5 U.S.C. chapter 5) does not apply to 

these regulations. For applicability of 

the Regulatory Flexibility Act (5 U.S.C. 

chapter 6), please refer to the Special 

Analysis section in the preamble to the 

cross-referenced notice of proposed 

rulemaking in the Proposed Rules 

section in this issue of the Federal 

Register. Pursuant to section 7805(f) of 

the Code, these regulations have been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on their 

impact on small businesses. 

Section 553(b) of the APA does not 

apply to these regulations because they 

are interpretative rules. Alternatively, 

the Treasury Department and the IRS 

have determined that good cause exists 

under section 553(b)(B) of the APA. 

That section provides that an agency is 

not required to publish a notice of 

proposed rulemaking in the Federal 

Register when the agency, for good 

cause, finds that notice and public 

comment thereon are impracticable, 

unnecessary, or contrary to the public 

interest. Due to the novel and complex 

issues raised by the branded 

prescription drug fee provision and the 

required coordination with other 

governmental agencies, the Treasury 

Department and the IRS have concluded 

that it would take significantly longer 

than the time between enactment 

(March 23, 2010) and the date of 

collection of the first fee (no later than 

September 30, 2011) to draft and issue 

a proposed rule with a comment period, 

review comments thoroughly, and then 

draft and issue a final rule. Accordingly, 

the Treasury Department and the IRS 

have determined that the notice and 

comment procedures are impracticable. 

In the months following enactment of 

section 9008, the Treasury Department 

and the IRS, in coordination with other 

governmental agencies, developed the 

proposed methodologies and processes 

to compute, verify, assess and collect 

the annual fee amounts, and published 

notices and a revenue procedure in the 

Internal Revenue Bulletin describing the 

proposed approach and soliciting public 

comments. The Treasury Department 

and the IRS provided an extended 

comment period to give the covered 

entities an opportunity to review their 

preliminary fee calculations before 

submitting comments on the proposed 

approach. In addition, the Treasury 

Department and the IRS engaged in 

discussions with affected external 

stakeholders and extensively 

coordinated with other governmental 

agencies. Consequently, the Treasury 

Department and the IRS also have 

determined that additional notice and 

comment before implementation of the 

process set forth in these regulations is 

unnecessary. 

Since Congress mandated that the IRS 

collect the applicable fee amount for the 

first fee year no later than September 30, 

2011, it is necessary that these 

regulations be issued immediately in 

order to provide covered entities with 

the rules governing the fee and payment 

prior to issuance of final fee 

determinations. However, comments are 

being solicited in the cross-referenced 

notice of proposed rulemaking that is in 

the Proposed Rules section in this issue 

of the Federal Register and will be 

considered before final regulations are 

issued regarding the branded 

prescription drug fee. 

Drafting Information 

The principal author of these 

regulations is Celia Gabrysh, Office of 

the Associate Chief Counsel 

(Passthroughs and Special Industries). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects 

26 CFR Part 51 

Drugs, Reporting and recordkeeping 

requirements. 

26 CFR Part 602 

Reporting and recordkeeping 

requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR chapter 1 is 

amended by adding part 51 to 

subchapter D and amending part 602 as 

follows: 

■ Paragraph 1. Part 51 is added to read 

as follows: 

PART 51—BRANDED PRESCRIPTION 

DRUG FEE 

Sec. 

51.1T Overview (temporary). 

51.2T Explanations of terms (temporary). 

51.3T Information requested from covered 

entities (temporary). 

51.4T Information provided by the agencies 

(temporary). 

51.5T Fee calculation (temporary). 

51.6T Notice of preliminary fee calculation 

(temporary). 

51.7T Dispute resolution process 

(temporary). 

51.8T Notification and payment of fee 

(temporary). 

51.9T Tax treatment of fee (temporary). 

51.10T Refund claims (temporary). 

51.11T Effective/applicability date 

(temporary). 

51.12T Expiration date (temporary). 

51.6302–1T Method of paying the branded 

prescription drug fee (temporary). 

Authority: 26 U.S.C. 7805; sec. 9008, 

Public Law 111–347 (124 Stat. 119). 

Section 51.8 also issued under 26 U.S.C. 

6302(a). 

Section 51.6302–1 also issued under 26 

U.S.C. 6302(a). 

§ 51.1T Overview (temporary). 

(a) The regulations in this part 51 are 

designated ‘‘Branded Prescription Drug 

Fee Regulations.’’ 

(b) The regulations in this part 51 

provide guidance on the annual fee 

imposed on covered entities engaged in 

the business of manufacturing or 

importing branded prescription drugs 

by section 9008 of the Patient Protection 

and Affordable Care Act (ACA), Public 

Law 111–148 (124 Stat. 119 (2010)), as 

amended by section 1404 of the Health 

Care and Education Reconciliation Act 

of 2010 (HCERA), Public Law 111–152 

(124 Stat. 1029 (2010)). All references in 

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51250 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 

these regulations to section 9008 are 

references to section 9008 of the ACA, 

as amended by section 1404 of HCERA. 

Unless otherwise indicated, all other 

section references are to sections in the 

Internal Revenue Code. All references to 

‘‘fee’’ in these regulations are references 

to the fee imposed by section 9008. 

(c) Section 9008(b)(4) sets an 

applicable fee amount for each year, 

beginning with 2011, that will be 

apportioned among covered entities 

with aggregate branded prescription 

drug sales of over $5 million to 

government programs or pursuant to 

coverage under such programs. 

Generally, each covered entity is liable 

for a fee in each fee year that is based 

on its sales of branded prescription 

drugs in the sales year that corresponds 

to the fee year in an amount determined 

by the Internal Revenue Service (IRS) 

under the rules of this part. 

§ 51.2T Explanation of terms (temporary). 

(a) In general. This section explains 

the terms used in this part for purposes 

of the fee imposed by section 9008 on 

branded prescription drugs. 

(b) Agencies. The term agencies 

means— 

(1) The Centers for Medicare and 

Medicaid Services of the Department of 

Health and Human Services (CMS); 

(2) The Department of Veterans 

Affairs (VA); and 

(3) The Department of Defense (DOD). 

(c) Branded prescription drug—(1) In 

general. The term branded prescription 

drug means— 

(i) Any prescription drug the 

application for which was submitted 

under section 505(b) of the Federal 

Food, Drug, and Cosmetic Act (21 U.S.C. 

355(b)); or 

(ii) Any biological product the license 

for which was submitted under section 

351(a) of the Public Health Service Act 

(42 U.S.C. 262(a)). 

(2) Prescription drug. The term 

prescription drug means any drug that is 

subject to section 503(b) of the Federal 

Food, Drug, and Cosmetic Act (21 U.S.C. 

353(b)). 

(d) Branded prescription drug sales. 

The term branded prescription drug 

sales means sales of branded 

prescription drugs to any government 

program or pursuant to coverage under 

any such government program. 

However, the term does not include 

sales of orphan drugs. 

(e) Covered entity—(1) In general. The 

term covered entity means any 

manufacturer or importer with gross 

receipts from branded prescription drug 

sales including— 

(i) A single-person covered entity; or 

(ii) A controlled group. 

(2) Single-person covered entity. The 

term single-person covered entity means 

a covered entity that is not affiliated 

with any other covered entity. 

(3) Controlled group. The term 

controlled group means a group of at 

least two covered entities that are 

treated as a single employer under 

section 52(a), 52(b), 414(m), or 414(o). 

(4) Special rules for controlled groups. 

For purposes of paragraph (e)(3) of this 

section (related to controlled groups)— 

(i) A foreign entity subject to tax 

under section 881 is included within a 

group under section 52(a) or 52(b); and 

(ii) A covered entity is treated as 

being a member of a controlled group if 

it is a member of the group on the end 

of the day on December 31st of the sales 

year. 

(f) Designated entity—(1) In general. 

The term designated entity means the 

person that acts for a controlled group 

regarding the fee by— 

(i) Filing Form 8947, ‘‘Report of 

Branded Prescription Drug 

Information’’; 

(ii) Receiving IRS communications 

about the fee for the group; 

(iii) Filing an error report for the 

group, if applicable, as described in 

§ 51.7T; and 

(iv) Paying the fee to the IRS. 

(2) Selection of designated entity—(i) 

Choice of controlled group. Unless the 

controlled group is an affiliated group 

that filed a consolidated return for 

Federal income tax purposes, the 

controlled group may select a person as 

the designated entity by filing Form 

8947 in accordance with the form 

instructions. Among other requirements, 

the designated entity must state that all 

the manufacturers or importers of 

branded prescription drugs that are 

members of the group have consented to 

the selection of the designated entity. 

(ii) Requirement for affiliated groups; 

common parent. If the controlled group, 

without regard to foreign corporations 

included under section 9008(d)(2)(B), is 

also an affiliated group that filed a 

consolidated return for Federal income 

tax purposes, the designated entity is 

the common parent of the affiliated 

group as identified on the tax return 

filed for the sales year. The covered 

entities in an affiliated group must name 

the common parent as the designated 

entity on Form 8947. 

(iii) IRS selection of a designated 

entity. If a controlled group does not 

select a designated entity, the IRS will 

select a member of the controlled group 

as the designated entity for the 

controlled group. 

(g) Fee year. The term fee year means 

the calendar year in which the fee for a 

particular sales year must be paid to the 

government. 

(h) Government programs. The term 

government programs (collectively 

‘‘Programs’’), means— 

(1) The Medicare Part B program; 

(2) The Medicare Part D program; 

(3) The Medicaid program; 

(4) Any program under which 

branded prescription drugs are procured 

by the Department of Veterans Affairs; 

(5) Any program under which 

branded prescription drugs are procured 

by the Department of Defense; and 

(6) The TRICARE retail pharmacy 

program. 

(i) Manufacturer or importer. The 

term manufacturer or importer means 

the person identified in the Labeler 

Code of the National Drug Code (NDC) 

for a branded prescription drug. 

(j) NDC. The term NDC means the 

National Drug Code. The NDC is an 

identifier assigned by the Food and 

Drug Administration (FDA) to a branded 

prescription drug, as well as other 

drugs. The Labeler Code is the first five 

numeric characters of the NDC or the 

first six numeric characters when the 

available five-character code 

combinations are exhausted. 

(k) Orphan drugs—(1) In general. 

Except as provided in paragraph (j)(2) of 

this section, the term orphan drug 

means any branded prescription drug 

for which any person claimed a section 

45C credit and that credit was allowed 

for any taxable year. 

(2) Exclusions. The term orphan drug 

does not include— 

(i) Any drug for which there has been 

a final assessment or court order 

disallowing the full section 45C credit 

taken for the drug; or 

(ii) Any drug for any sales year after 

the calendar year in which the FDA 

approved the drug for marketing for any 

indication other than the treatment of a 

rare disease or condition for which a 

section 45C credit was allowed, 

regardless of whether a section 45C 

credit was allowed for the drug either 

before, in the same year as, or after this 

FDA designation. 

(3) FDA marketing approval for 

treatment of another rare disease or 

condition. If a drug has prior FDA 

marketing approval for the treatment of 

a rare disease or condition for which a 

section 45C credit was allowed, and the 

FDA subsequently gives the drug 

marketing approval for the treatment of 

another rare disease or condition for 

which another section 45C credit was 

also allowed, the drug retains its status 

as an orphan drug provided the FDA has 

never approved the drug for marketing 

for any indication other than the 

treatment of a rare disease or condition 

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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 51251 

for which a section 45C credit was 

allowed. 

(4) Examples. The following examples 

illustrate the rules of this paragraph (k): 

Example 1: Allowance of section 45C credit 

and later FDA marketing approval of drug for 

an indication other than the treatment of a 

rare disease or condition. (i) Facts. Drug A is 

a branded prescription drug that was not on 

the market before 2008. In 2008, a covered 

entity claimed a section 45C credit for its 

qualified clinical testing expenses related to 

Drug A. There was no final IRS assessment 

or court order that disallowed the full credit 

for Drug A. In 2009, the FDA approved Drug 

A for marketing for an indication other than 

the treatment of the rare disease or condition 

for which the section 45C credit was allowed 

and this indication was not for another rare 

disease or condition for which a section 45C 

was allowed. 

(ii) Analysis. In 2008 and 2009, Drug A is 

an orphan drug because: first, it was a 

branded prescription drug for which a person 

claimed a section 45C credit and for which 

that credit was allowed for a taxable year; 

second, there was not a final assessment or 

court order disallowing the full credit taken 

for the drug; and third, before 2009, the FDA 

did not approve the drug for marketing for 

any indication other than the treatment of a 

rare disease or condition for which a section 

45C credit was allowed. However, Drug A is 

not an orphan drug for the 2010 sales year 

or later sales years because in 2009 the FDA 

approved Drug A for marketing for an 

indication other than the treatment of the 

rare disease or condition for which the 

section 45C credit was allowed and this 

indication was not for treatment of another 

rare disease or condition for which a section 

45C credit was allowed. 

Example 2: FDA marketing approval of 

drug for an indication other than the 

treatment of a rare disease or condition and 

later allowance of section 45C credit. (i) 

Facts. Drug B is a branded prescription drug 

that was not on the market before 2008. In 

2008, FDA approved Drug B for marketing for 

an indication other than the treatment of a 

rare disease or condition for which a section 

45C credit was allowed. In 2009, a covered 

entity claimed a section 45C credit for its 

qualified clinical testing expenses related to 

Drug B. There was no final IRS assessment 

or court order that disallowed the full credit 

for Drug B. 

(ii) Analysis. In 2008, Drug B is not an 

orphan drug because no section 45C credit 

was allowed. In 2009, although the covered 

entity was allowed a section 45C credit for 

its qualified clinical testing expenses related 

to Drug B and there was no final IRS 

assessment or court order that disallowed the 

full credit, Drug B still is not an orphan drug 

because the FDA had approved the drug in 

2008 for marketing for an indication other 

than the treatment of a rare disease or 

condition for which a section 45C credit was 

allowed in 2009. Thus, Drug B is not an 

orphan drug for the 2009 sales year or later 

sales years. 

Example 3: Allowance of section 45C credit 

and subsequent allowance of section 45C 

credit with no intervening FDA marketing 

approval of drug for an indication other than 

the treatment of a rare disease or condition 

for which a section 45C credit was allowed. 

(i) Facts. Drug C is a branded prescription 

drug that was not on the market before 2007. 

In 2007, a covered entity claimed a section 

45C credit for its qualified clinical testing 

expenses related to Drug C. In 2009, a 

covered entity claimed an additional section 

45C credit for its qualified clinical testing 

expenses related to Drug C for marketing for 

the treatment of a rare disease or condition 

different than the one for which the section 

45C credit was claimed in 2007. There was 

no final IRS assessment or court order that 

disallowed the full credit for Drug C in 2007 

or 2009. The FDA has not approved Drug C 

for an indication other than the treatment of 

a rare disease or condition for which a 

section 45C was allowed. 

(ii) Analysis. In 2007 and 2008, Drug C is 

an orphan drug because: first, it was a 

branded prescription drug for which a person 

claimed a section 45C credit and for which 

that credit was allowed for a taxable year; 

second, there was not a final assessment or 

court order disallowing the full credit taken 

for the drug; and third, FDA had not 

approved the drug for marketing for any 

indication other than the treatment of a rare 

disease or condition for which a section 45C 

credit was allowed. In 2009, Drug C retains 

its orphan drug status because another 

section 45C credit was allowed and the FDA 

did not approve Drug C for marketing for any 

indication other than the treatment of 

another rare disease or condition for which 

a section 45C credit was allowed. Thus, Drug 

C is an orphan drug for the 2010 sales year. 

(l) Sales taken into account. The term 

sales taken into account means branded 

prescription drug sales after application 

of the percentage adjustment table in 

section 9008(b)(2) (relating to annual 

sales less than $400,000,001). See 

§ 51.5T(a)(3). 

(m) Sales year. The term sales year 

means the second calendar year 

preceding the fee year. Thus, for 

example, for the fee year of 2011, the 

sales year is 2009. 

§ 51.3T Information requested from 

covered entities (temporary). 

(a) In general. Annually, each covered 

entity may submit a completed Form 

8947, ‘‘Report of Branded Prescription 

Drug Information,’’ in accordance with 

the instructions for the form. Generally, 

the form solicits information from 

covered entities on NDCs, orphan drugs, 

designated entities, rebates, and other 

information specified by the form or its 

instructions. 

(b) Due date. Form 8947 must be filed 

by the date prescribed in guidance in 

the Internal Revenue Bulletin. 

§ 51.4T Information provided by the 

agencies (temporary). 

(a) In general. For each sales year, the 

IRS will compile a list of branded 

prescription drugs by NDC using the 

data submitted on Forms 8947 and in 

error reports submitted as part of the 

dispute resolution process (described in 

§ 51.7T) and, after applying appropriate 

due diligence, will provide this list to 

the Agencies. The Agencies will provide 

data to the IRS on branded prescription 

drug sales during the sales year by 

Program and NDC. The Agencies will 

provide data for use in preparing the 

preliminary fee calculation (described 

in §§ 51.5T and 51.6T) and may revise 

or supplement that data following 

review of error reports submitted as part 

of the dispute resolution process. The 

calculation methodology for calculating 

the sales amounts for each Program, 

including any reasonable estimation 

techniques and assumptions that the 

Agencies expect to use, is described in 

this section. 

(b) Medicare Part D. CMS will 

aggregate the ingredient cost reported in 

the ‘‘Ingredient Cost Paid’’ field and the 

units reported in the ‘‘Quantity 

Dispensed’’ field of the Prescription 

Drug Event (PDE) records at the NDC 

level for each sales year. Only PDE data 

that Part D sponsors have submitted by 

the PDE submission deadline (within 6 

months after the end of the sales year) 

and have been approved for inclusion in 

the Part D payment reconciliation will 

be included. 

(c) Medicare Part B—(1) In general. 

CMS will determine branded 

prescription drug sales under Medicare 

Part B using the following two data 

sources: 

(i) CMS will use data reported by 

manufacturers pursuant to section 

1847A(c) of the Social Security Act to 

calculate the annual weighted average 

sales price (ASP) for each Healthcare 

Common Procedure Coding System 

(HCPCS) code for the sales year. 

(ii) CMS will use the Medicare Part B 

National Summary Data File located at 

http://www.cms.gov/ 

NonIdentifiableDataFiles/ 

03_PartBNationalSummaryDataFile.asp 

to obtain the number of allowed billing 

units per HCPCS code for claims 

incurred during the sales year. 

(2) Calculation. Using the data 

described in paragraph (c)(1) of this 

section, CMS will determine branded 

prescription drugs sales under Medicare 

Part B as described in paragraphs (c)(3), 

(4), and (5) of this section. 

(3) HCPCS code; single entity. For 

each HCPCS code consisting solely and 

exclusively of branded prescription 

drugs (as identified by their respective 

NDCs) manufactured by a single entity, 

CMS will multiply the annual weighted 

ASP by the total number of allowed 

billing units paid during the sales year 

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51252 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 

to determine the total sales for all NDCs 

associated with the HCPCS code 

attributed to Medicare Part B. 

(4) HCPCS code; multiple 

manufacturers and/or multiple drugs— 

(i) Step one. For each HCPCS code 

consisting of a mixture of branded 

prescription drugs made by different 

manufacturers and/or a mixture of 

branded prescription and generic drugs, 

CMS will determine— 

(A) The annual weighted ASP for the 

HCPCS code; 

(B) The total number of allowed 

billing units paid by Medicare Part B for 

each HCPCS code during the sales year; 

(C) The names of the entities engaged 

in manufacturing each NDC assigned to 

the HCPCS code; and 

(D) Those entities (if any) identified in 

paragraph (c)(4)(C) of this section that 

are manufacturing branded prescription 

drugs assigned to the HCPCS code. 

(ii) Step two. Using the information 

from paragraph (c)(4)(i) of this section, 

CMS will then do the following: 

(A) Calculate the proportion of sales, 

expressed as a percentage, attributed to 

each NDC assigned to the HCPCS code 

by determining the percentage of total 

sales reported to CMS by each 

manufacturer of NDC(s) that are 

assigned to the HCPCS code. For 

example, if HCPCS code JXXXX 

contains three drugs with a total of 

$310,000 sales reported by 

manufacturers to CMS for the sales year, 

and $100,000 was reported for Drug A, 

$200,000 was reported for Drug B, and 

$10,000 was reported for Drug C, the 

proportion of sales attributed to each 

NDC will be 32.26 percent for Drug A, 

64.52 percent for Drug B, and 3.22 

percent for Drug C; and 

(B) For each NDC, multiply the 

product of the annual weighted ASP 

and the total allowed billing units paid 

by Medicare Part B for the HCPCS code 

by the proportion of sales calculated in 

paragraph (c)(4)(ii)(A) of this section to 

determine the sales reportable to the IRS 

(that is, percentage × (annual weighted 

ASP × allowed units) = total sales 

reported to IRS for the NDC). The sales 

for each manufacturer’s NDCs assigned 

to a HCPCS code are summed and the 

total sales for each manufacturer’s NDCs 

in a HCPCS code will be reported to the 

IRS. 

(5) HCPCS code; unable to establish a 

reliable proportion of sales. If CMS is 

unable to establish a reliable proportion 

of sales attributable to each NDC 

assigned to the HCPCS code using the 

method described in paragraph 

(c)(4)(ii)(A) of this section, CMS will use 

Medicare Part D utilization percentages 

in lieu of the proportion of sales 

determined under paragraph (c)(4)(ii)(A) 

of this section to perform the calculation 

described in paragraph (c)(4)(ii)(B) of 

this section. 

(d) Medicaid. (1) CMS will determine 

the branded prescription drug sales for 

Medicaid as the per-unit Average 

Manufacturer Price (AMP) less the Unit 

Rebate Amounts (URA) that CMS 

calculates based on manufacturerreported pricing data multiplied by the 

number of units reported billed by states 

to manufacturers. This data will be 

based on the data reported to CMS 

during the sales year by covered entities 

and the states for drugs paid for by the 

states in the Medicaid drug rebate 

program during the sales year. 

(2) For any covered entity identified 

in the first five (or six) digits of an NDC 

during any of the four quarters of a sales 

year, CMS will use the following 

methodology to derive the sales figures 

that account for third-party payers, such 

as Medicare Part B: 

(i) Report total dollars per NDC for 

AMP–URA multiplied by the units 

reported by a state or states. 

(ii) Determine the percentage of the 

total amount reimbursed that is the 

Medicaid amount of that 

reimbursement. For example, if the total 

amount reimbursed is $100,000, and the 

Medicaid amount reimbursed is 

$20,000, then the percentage is 20 

percent. 

(iii) Multiply the percentage of the 

Medicaid amount of that reimbursement 

(in the example in paragraph (d)(2)(ii) of 

this section, 20 percent) by the dollar 

figure derived from paragraph (d)(2)(i) 

of this section (AMP minus URA 

multiplied by units) to get the new 

adjusted sales dollar totals. 

(e) Department of Veterans Affairs. 

VA will provide, by NDC, the total 

amount paid (net of refunds and rebates, 

when they are associated with a specific 

NDC) for each branded prescription 

drug procured by the VA for its 

beneficiaries during the sales year. For 

this purpose, a drug is procured on the 

invoice (billing) date. The basis of this 

information will be national 

procurement data reported during the 

sales year by VA’s Pharmaceutical 

Prime Vendor to the VA Pharmacy 

Benefits Management Service and 

National Acquisition Center. 

(f) Department of Defense. The DOD 

will provide, by Labeler Code, the 

manufacturer’s name, the NDC, brand 

name, and the amount paid (net of 

rebates and or refunds) for each branded 

prescription drug procured by DOD (for 

DOD programs other than the TRICARE 

retail pharmacy program) during the 

sales year. For DOD programs other than 

the TRICARE retail pharmacy program, 

a drug is procured based upon the date 

it was ordered. DOD will provide, by 

Labeler Code, the manufacturer’s name, 

the NDC, brand name, and the amount 

paid (net of rebates or refunds) for each 

branded prescription drug procured by 

DOD through the TRICARE Retail 

Pharmacy Program during the sales 

year. For the TRICARE retail pharmacy 

program, a drug is procured based upon 

the date it was dispensed. The amount 

paid is based on the submitted 

ingredient cost paid, aggregated by NDC, 

for eligible TRICARE retail pharmacy 

claims submitted during the program 

year, minus any refunds or rebates for 

the corresponding claims. 

§ 51.5T Fee calculation (temporary). 

(a) Fee components—(1) In general. 

For every fee year, the IRS will calculate 

a covered entity’s total fee as described 

in this section. For each fee year after 

2011, the IRS will determine a covered 

entity’s total fee by applying, if 

applicable, the adjustment amount 

described in paragraph (e) of this 

section to the entity’s allocated fee 

described in paragraph (d) of this 

section. 

(2) Calculation of branded 

prescription drug sales. Each covered 

entity’s allocated fee for any fee year is 

equal to an amount that bears the same 

ratio to the applicable amount as the 

covered entity’s branded prescription 

drug sales taken into account during the 

sales year bears to the aggregate branded 

prescription drug sales of all covered 

entities taken into account during the 

sales year. 

(3) Applicable amount. The 

applicable amounts for fee years are— 

Fee year Applicable amount 

2011 .............................. $2,500,000,000 

2012 .............................. 2,800,000,000 

2013 .............................. 2,800,000,000 

2014 .............................. 3,000,000,000 

2015 .............................. 3,000,000,000 

2016 .............................. 3,000,000,000 

2017 .............................. 4,000,000,000 

2018 .............................. 4,100,000,000 

2019 and thereafter ...... 2,800,000,000 

(3) Sales taken into account. A 

covered entity’s branded prescription 

drug sales taken into account during any 

calendar year are as follows: 

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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 51253 

Covered entity’s branded prescription drug sales during the calendar year that are: 

Percentage of 

branded prescription drug sales 

taken into account 

is 

Not more than $5,000,000 ........................................................................................................................................................... 0 

More than $5,000,000 but not more than $125,000,000 ............................................................................................................ 10 

More than $125,000,000 but not more than $225,000,000 ........................................................................................................ 40 

More than $225,000,000 but not more than $400,000,000 ........................................................................................................ 75 

More than $400,000,000 ............................................................................................................................................................. 100 

(b) Determination of branded 

prescription drug sales. The IRS will 

compile each covered entity’s branded 

prescription drug sales for each Program 

by NDC. Each NDC will be attributed to 

the covered entity that owns the NDC as 

of the end of the day on December 31st 

of the sales year. For a covered entity 

that is a controlled group, this includes 

all NDCs that a member of the covered 

entity owns as of the end of the day on 

December 31st of the sales year. For this 

purpose, the IRS may revise the list of 

NDCs as a result of information received 

in the dispute resolution process, and 

the data the IRS uses to produce the 

final fee calculation will include any 

revisions provided by the Agencies at 

the completion of the dispute resolution 

process. Each covered entity’s branded 

prescription drug sales will be reduced 

by its Medicare Part D rebates and 

Medicaid state supplemental rebate 

amounts in the following manner. If 

CMS has the rebate information for 

these Programs for a sales year, CMS 

will report to the IRS branded 

prescription drug sales net of rebates. If 

CMS does not have the rebate 

information for these programs for a 

sales year, the IRS will reduce the 

branded prescription drug sales 

reported for these Programs by rebates 

reported by the covered entities on 

Forms 8947. 

(c) Determination of sales taken into 

account. (1) For each sales year and for 

each covered entity, the IRS will 

calculate sales taken into account. The 

resulting number is the numerator of the 

ratio described in paragraph (d)(1) of 

this section. 

(2) For each sales year, the IRS will 

calculate the aggregate branded 

prescription drug sales taken into 

account for all covered entities. The 

resulting number is the denominator of 

the ratio described in paragraph (d)(2) of 

this section. 

(d) Allocated fee calculation. For each 

covered entity for each fee year, the IRS 

will calculate the entity’s allocated fee 

by multiplying the applicable amount 

from paragraph (a)(2) of this section by 

a fraction— 

(1) The numerator of which is the 

covered entity’s branded prescription 

drug sales taken into account during the 

sales year (described in paragraph (c)(1) 

of this section); and 

(2) The denominator of which is the 

aggregate branded prescription drug 

sales taken into account for all covered 

entities during the same year (described 

in paragraph (c)(2) of this section). 

(e) Adjustment amount. For each fee 

year after 2011, in addition to the 

allocated fee computed under paragraph 

(d) of this section, the IRS will also 

calculate an adjustment amount that 

reflects the difference between the 

allocated fee determined for the covered 

entity in the immediately preceding fee 

year, using data from the second 

calendar year preceding that fee year, 

and what the allocated fee would have 

been for that entity for the immediately 

preceding fee year using data from the 

calendar year immediately preceding 

that fee year. For example, for 2012, the 

adjustment amount for a covered entity 

will be the difference between the 

entity’s 2011 allocated fee, using 2009 

data, and what the 2011 allocated fee 

would have been using 2010 data. 

Although the adjustment reflects a 

revision of the prior year’s fee based on 

data from the year immediately 

preceding the prior fee year, the 

adjustment is only taken into account by 

adding it to or subtracting it from the 

allocated fee computed under paragraph 

(d) of this section for the current fee 

year to arrive at the total fee for the 

current fee year. 

§ 51.6T Notice of preliminary fee 

calculation (temporary). 

(a) Content of notice. For each sales 

year, the IRS will make a preliminary 

calculation of the fee for each covered 

entity as described in § 51.5T. The IRS 

will notify each covered entity of its 

preliminary fee calculation for that sales 

year. The notification to a covered entity 

of its preliminary fee calculation will 

include— 

(1) The covered entity’s allocated fee; 

(2) The covered entity’s branded 

prescription drug sales, by NDC, by 

Program; 

(3) The covered entity’s branded 

prescription drug sales taken into 

account after application of 

§ 51.5T(a)(3); 

(4) The aggregate branded 

prescription drug sales taken into 

account for all covered entities; 

(5) After the 2011 fee year, the 

covered entity’s adjustment amount 

calculated as described in § 51.5T(e); 

and 

(6) A reference to the fee dispute 

resolution procedures set forth in 

guidance published in the Internal 

Revenue Bulletin. 

(b) Time of notice. The IRS will send 

each covered entity notice of its 

preliminary fee calculation by the date 

prescribed in guidance published in the 

Internal Revenue Bulletin. 

§ 51.7T Dispute resolution process 

(temporary). 

(a) In general. Upon receipt of its 

preliminary fee calculation, each 

covered entity will have an opportunity 

to dispute this calculation by submitting 

to the IRS an error report as described 

in this section. The IRS will provide its 

final determination with respect to error 

reports no later than the time the IRS 

provides a covered entity with a final 

fee calculation. 

(b) Program errors. To assert that there 

has been one or more errors in drug 

sales data, a covered entity must submit 

a separate error report for each Program 

with the asserted errors. Each report 

must include the following 

information— 

(1) Entity name, entity number (if 

applicable, from Part I (a) of the Form 

8947), address, and Employer 

Identification Number (EIN) as 

previously reported on the Form 8947; 

(2) The name, telephone number, and 

e-mail address (if available) of one or 

more employees or representatives of 

the entity with whom the Agencies may 

discuss the claimed errors. A Form 

2848, ‘‘Power of Attorney and 

Declaration of Representative,’’ must be 

filed with the error report; and 

(3) The name of the Program that 

reported the data, the NDC, the specific 

amount of sales data disputed, the 

proposed corrected amount, an 

explanation of why the Agency should 

use the proposed corrected data instead, 

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51254 Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 

and documentation of any Program drug 

sales data or other information used to 

establish the existence of any errors. 

(c) Errors other than Program drug 

sales errors. To assert that there has 

been one or more errors in the 

mathematical calculation of the fee, the 

rebate data, the listing of an NDC for an 

orphan drug, or any other error (other 

than Program drug sales data errors), a 

covered entity must submit one error 

report, separated into sections by type of 

error, and must include the following 

information— 

(1) Entity name, entity number (if 

applicable, from Part I (a) of the Form 

8947), address, and EIN as previously 

reported on the Form 8947; 

(2) The name, telephone number, and 

e-mail address (if available) of one or 

more employees or representatives of 

the entity with whom the IRS and/or the 

Agencies may discuss the claimed 

errors. If the representative is not an 

employee of the entity, a Form 2848 

must be filed with the error report; 

(3) For a mathematical calculation 

error, the specific calculation element(s) 

that the entity disputes and its proposed 

corrected calculation; 

(4) For a rebate data error, the NDC for 

the drug to which it relates; a discussion 

of whether the data used in the 

preliminary fee calculation matches 

previously reported Form 8947 data on 

rebates; and, if the data used in the 

preliminary fee calculation does match 

the Form 8947 data, an explanation of 

why the Form 8947 data was erroneous 

and why the IRS should use the 

proposed corrected data instead; 

(5) For the listing of an NDC for an 

orphan drug, the name and NDC of the 

orphan drug; a discussion of whether 

the data used in the preliminary fee 

calculation matches previously reported 

Form 8947 data on orphan drugs; and, 

if the data used in the preliminary fee 

calculation does match the Form 8947 

data, an explanation of why the Form 

8947 data was erroneous and why the 

IRS should use the proposed corrected 

data instead; 

(6) For any other asserted error, an 

explanation of the nature of the error, 

how the error affects the fee calculation, 

an explanation of how the entity 

established that an error occurred, the 

proposed correction to the error, and an 

explanation of why the IRS or Agency 

should use the proposed corrected data 

instead; 

(7) If an entity is using data to 

establish the existence of an error and 

that data was not reported on Form 8947 

or contained in the notification of the 

preliminary fee calculation, a 

description of what the data is, how the 

entity acquired the data, and who 

maintains it; and 

(8) Documentation of any rebate and 

orphan drug data, or other information 

used to establish the existence of any 

errors. 

(d) Form, manner, and timing of 

submission. Each covered entity must 

submit its error report(s) in the form and 

manner that is prescribed in guidance 

published in the Internal Revenue 

Bulletin. This guidance will also 

prescribe the date by which each 

covered entity must submit its report(s). 

§ 51.8T Notification and payment of fee 

(temporary). 

(a) Notification of final fee 

calculation. No later than August 31st of 

each fee year, the IRS will send each 

covered entity its final fee calculation 

for that year. In any fee year, the IRS 

will base its final fee calculation on data 

provided to it by the Agencies as 

adjusted pursuant to the dispute 

resolution process. The notification to a 

covered entity of its final fee calculation 

will include— 

(1) The covered entity’s allocated fee; 

(2) After the 2011 fee year, an 

adjustment amount calculated as 

described in § 51.5T; 

(3) The covered entity’s branded 

prescription drug sales, by NDC, by 

Program; 

(4) The covered entity’s branded 

prescription drug sales taken into 

account after application of 

§ 51.5T(a)(3); 

(5) The aggregate branded 

prescription drug sales taken into 

account for all covered entities; and 

(6) The final determination with 

respect to error reports. 

(b) Differences in preliminary fee 

calculation and final fee calculation. A 

covered entity’s final fee calculation 

may differ from the covered entity’s 

preliminary fee calculation because of 

changes made pursuant to the dispute 

resolution process described in § 51.7T. 

Even if a covered entity did not file an 

error report described in § 51.7T, a 

covered entity’s final fee may differ 

from a covered entity’s preliminary fee 

because of a change in data reported by 

the Agencies after resolution of error 

reports, including a change in the 

aggregate prescription drug sales figure. 

A change in aggregate prescription drug 

sales data can affect each covered 

entity’s fee because each covered 

entity’s fee is a fraction of the aggregate 

fee collected from all covered entities. A 

covered entity’s final fee may also differ 

from its preliminary fee calculation 

because the data used in the preliminary 

fee calculation may have contained 

inaccurate branded prescription drug 

sales information that was corrected or 

updated at the conclusion of the dispute 

resolution process. 

(c) Payment of final fee. Each covered 

entity must pay its final fee by 

September 30th of the fee year. For a 

controlled group, the payment must be 

made using the designated entity’s EIN 

as reported on Form 8947. The fee must 

be paid by electronic funds transfer as 

required by § 51.6302–1T. There is no 

tax return to be filed for the fee. 

(d) Joint and several liability. In the 

case of a controlled group that is liable 

for the fee, all covered entities within 

the controlled group are jointly and 

severally liable for the fee. Accordingly, 

if a covered entity’s fee is not paid, the 

IRS will separately assess each covered 

entity in the group for the full amount 

of the controlled group’s fee. 

§ 51.9T Tax treatment of fee (temporary). 

(a) Treatment as an excise tax. The fee 

imposed by section 9008 is treated as an 

excise tax for purposes of subtitle F of 

the Code (sections 6001–7874). Thus, 

references in subtitle F to ‘‘taxes 

imposed by this title,’’ ‘‘internal revenue 

tax,’’ and similar references, are also 

references to the fee imposed by section 

9008. For example, the fee imposed by 

section 9008 is assessed (section 6201), 

collected (sections 6301, 6321, and 

6331), enforced (section 7602), subject 

to examination and summons (section 

7602), and subject to confidentiality 

rules (section 6103), in the same manner 

as taxes imposed by the Code. 

(b) Deficiency procedures. The 

deficiency procedures of sections 6211– 

6216 do not apply to the fee imposed by 

section 9008. 

(c) Limitation on assessment. The IRS 

must assess the amount of the fee for 

any fee year within three years of 

September 30th of that fee year. 

(d) Application of section 275. The fee 

is treated as a tax described in section 

275(a)(6) (relating to taxes for which no 

deduction is allowed). 

§ 51.10T Refund claims (temporary). 

Any claim for a refund of the fee must 

be made by the person that paid the fee 

to the government and must be made on 

Form 843, ‘‘Claim for Refund and 

Request for Abatement,’’ in accordance 

with the instructions for that form. 

§ 51.11T Effective/applicability date 

(temporary). 

Sections 51.1T through 51.10T apply 

to any fee on branded prescription drug 

sales that is due on or after September 

30, 2011. 

§ 51.12T Expiration date (temporary). 

The applicability of §§ 51.1T through 

51.10T expires August 15, 2014. 

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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations 51255 

§ 51.6302–1T Method of paying the 

branded prescription drug fee (temporary). 

(a) Fee to be paid by electronic funds 

transfer. Under the authority of section 

6302(a), the fee imposed on branded 

prescription drug sales by section 9008 

and § 51.5T must be paid by electronic 

funds transfer as defined in § 31.6302– 

1(h)(4)(i), as if the fee were a depository 

tax. For the time for paying the fee, see 

§ 51.8T. 

(b) Effective/applicability date. This 

section applies on and after August 18, 

2011. 

(c) Expiration date. The applicability 

of this section expires August 15, 2014. 

PART 602—OMB CONTROL NUMBERS 

UNDER THE PAPERWORK 

REDUCTION ACT 

■ Par. 2. The authority citation for part 

602 continues to read as follows: 

Authority: 26 U.S.C. 7805. 

■ Par. 3. In § 602.101, paragraph (b) is 

amended by adding the following entry 

in numerical order to the table to read 

as follows: 

§ 602.101 OMB Control numbers. 

* * * * * 

(b) * * * 

CFR part or section 

where indentified and 

described 

Current OMB 

Control No. 

* * * * * 

51.8T ............................. 1545–2209 

* * * * * 

Sarah Hall Ingram, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: August 12, 2011. 

Emily S. McMahon, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2011–21011 Filed 8–15–11; 11:15 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket No. USCG–2011–0760] 

RIN 1625–AA87 

Security Zone; Potomac River, 

Georgetown Channel, Washington, DC 

AGENCY: Coast Guard, DHS. 

ACTION: Temporary final rule. 

SUMMARY: The Coast Guard is 

establishing a temporary security zone 

encompassing certain waters of the 

Potomac River, Georgetown Channel, in 

Washington, DC, in order to safeguard 

high-ranking public officials from 

terrorist acts and incidents. This action 

is necessary to ensure the safety of 

persons and property, and prevent 

terrorist acts or incidents. This rule 

prohibits vessels and people from 

entering the security zone and requires 

vessels and persons in the security zone 

to depart the security zone, unless 

specifically exempt under the 

provisions in this rule or granted 

specific permission from the Coast 

Guard Captain of the Port Baltimore. 

DATES: This rule is effective from 6 a.m. 

until 6 p.m. on August 28, 2011. 

ADDRESSES: Documents indicated in this 

preamble as being available in the 

docket are part of docket USCG–2011– 

0760 and are available online by going 

to http://www.regulations.gov, inserting 

USCG–2011–0760 in the ‘‘Keyword’’ 

box, and then clicking ‘‘Search.’’ They 

are also available for inspection or 

copying at the Docket Management 

Facility (M–30), U.S. Department of 

Transportation, West Building Ground 

Floor, Room W12–140, 1200 New Jersey 

Avenue, SE., Washington, DC 20590, 

between 9 a.m. and 5 p.m., Monday 

through Friday, except Federal holidays. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this temporary 

rule, call or e-mail Mr. Ronald L. Houck, 

at Sector Baltimore Waterways 

Management Division, Coast Guard; 

telephone 410–576–2674, e-mail 

Ronald.L.Houck@uscg.mil. If you have 

questions on viewing the docket, call 

Renee V. Wright, Program Manager, 

Docket Operations, telephone 202–366– 

9826. 

SUPPLEMENTARY INFORMATION: 

Regulatory Information 

The Coast Guard is issuing this 

temporary final rule without prior 

notice and opportunity to comment 

pursuant to authority under section 4(a) 

of the Administrative Procedure Act 

(APA) (5 U.S.C. 553(b)). This provision 

authorizes an agency to issue a rule 

without prior notice and opportunity to 

comment when the agency for good 

cause finds that those procedures are 

‘‘impracticable, unnecessary, or contrary 

to the public interest.’’ Under 5 U.S.C. 

553(b)(B), the Coast Guard finds that 

good cause exists for not publishing a 

notice of proposed rulemaking (NPRM) 

with respect to this rule because it is 

contrary to public interest to delay the 

effective date of this rule. The Coast 

Guard is establishing the security zone 

to protect high-ranking government 

officials, mitigate potential terrorist acts, 

and enhance public and maritime safety 

and security. The Coast Guard was 

unable to publish a NPRM due to the 

short time period between event 

planners notifying the Coast Guard of 

the event and publication of the security 

zone. Furthermore, delaying the 

effective date would be contrary to the 

security zone’s intended objectives of 

protecting high-ranking government 

officials, mitigating potential terrorist 

acts and enhancing public and maritime 

safety security. 

Under 5 U.S.C. 553(d)(3), the Coast 

Guard finds that good cause exists for 

making this rule effective less than 30 

days after publication in the Federal 

Register. Due to the need for immediate 

action, the restriction of vessel traffic is 

necessary to protect life, property and 

the environment, therefore, a 30-day 

notice period is impracticable. Delaying 

the effective date would be contrary to 

the security zone’s intended objectives 

of protecting high-ranking government 

officials, mitigating potential terrorist 

acts and enhancing public and maritime 

safety and security. 

Background and Purpose 

The President of the United States 

will be attending the Martin Luther 

King, Jr. National Memorial in 

Washington, DC dedication ceremony 

on August 28, 2011. The ceremony is 

located along the waterfront in 

Washington, DC, in close proximity to 

navigable waterways within the Captain 

of the Port’s Area of Responsibility. 

The Coast Guard has given each Coast 

Guard Captain of the Port the ability to 

implement comprehensive port security 

regimes designed to safeguard human 

life, vessels, and waterfront facilities 

while still sustaining the flow of 

commerce. The Captain of the Port 

Baltimore is establishing this security 

zone to protect high-ranking 

government officials, mitigate potential 

terrorist acts, and enhance public and 

maritime safety and security in order to 

safeguard life, property, and the 

environment on or near the navigable 

waters. 

Discussion of Rule 

Through this regulation, the Coast 

Guard will establish a security zone. 

The security zone will be in effect from 

6 a.m. until 6 p.m. on August 28, 2011. 

The security zone will include all 

navigable waters of the Potomac River, 

Georgetown Channel, within 75 yards 

from eastern shore measured 

perpendicularly to the shore between 

the Theodore Roosevelt Memorial 

Bridge and the Arlington Memorial 

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