508 Federal Register / Vol. 69, No. 3 / Tuesday, January 6, 2004 / Rules and Regulations 

information may be received which may 

relate to a case under the investigative 

jurisdiction of another agency. The 

maintenance of this information may be 

necessary to provide leads for appropriate 

law enforcement purposes and to establish 

patterns of activity which may relate to the 

jurisdiction of other cooperating agencies. 

(D) From subsection (e)(2) because 

collecting information to the fullest extent 

possible directly from the subject individual 

may or may not be practical in a criminal 

and/or civil investigation. 

(E) From subsection (e)(3) because 

supplying an individual with a form 

containing a Privacy Act Statement would 

tend to inhibit cooperation by many 

individuals involved in a criminal and/or 

civil investigation. The effect would be 

somewhat adverse to established 

investigative methods and techniques. 

(F) From subsections (e)(4)(G), (H), and (I) 

because this system of records is exempt 

from the access provisions of subsection (d). 

(G) From subsection (e)(5) because the 

requirement that records be maintained with 

attention to accuracy, relevance, timeliness, 

and completeness would unfairly hamper the 

investigative process. It is the nature of law 

enforcement for investigations to uncover the 

commission of illegal acts at diverse stages. 

It is frequently impossible to determine 

initially what information is accurate, 

relevant, timely, and least of all complete. 

With the passage of time, seemingly 

irrelevant or untimely information may 

acquire new significance as further 

investigation brings new details to light. 

(H) From subsection (e)(8) because the 

notice requirements of this provision could 

present a serious impediment to law 

enforcement by revealing investigative 

techniques, procedures, and existence of 

confidential investigations. 

(I) From subsection (f) because the agency’s 

rules are inapplicable to those portions of the 

system that are exempt and would place the 

burden on the agency of either confirming or 

denying the existence of a record pertaining 

to a requesting individual might in itself 

provide an answer to that individual relating 

to an on-going investigation. The conduct of 

a successful investigation leading to the 

indictment of a criminal offender precludes 

the applicability of established agency rules 

relating to verification of record, disclosure 

of the record to that individual, and record 

amendment procedures for this record 

system.

(J) From subsection (g) because this system 

of records should be exempt to the extent 

that the civil remedies relate to provisions of 

5 U.S.C. 552a from which this rule exempts 

the system. 

(iv) Authority: (A) Investigative material 

compiled for law enforcement purposes, 

other than material within the scope of 

subsection 5 U.S.C. 552a(j)(2), may be exempt 

pursuant to 5 U.S.C. 552a(k)(2). However, if 

an individual is denied any right, privilege, 

or benefit for which he would otherwise be 

entitled by Federal law or for which he 

would otherwise be eligible, as a result of the 

maintenance of the information, the 

individual will be provided access to the 

information exempt to the extent that 

disclosure would reveal the identity of a 

confidential source. NOTE: When claimed, 

this exemption allows limited protection of 

investigative reports maintained in a system 

of records used in personnel or 

administrative actions. 

(B) Therefore, portions of this system of 

records may be exempt pursuant to 5 U.S.C. 

552a(k)(2) from the following subsections of 

5 U.S.C. 552a(c)(3), (d), (e)(1), (e)(4)(G), (H) 

and (I), and (f). 

(v) Reasons: (A) From subsection (c)(3) 

because to grant access to the accounting for 

each disclosure as required by the Privacy 

Act, including the date, nature, and purpose 

of each disclosure and the identity of the 

recipient, could alert the subject to the 

existence of the investigation. This could 

seriously compromise case preparation by 

prematurely revealing its existence and 

nature; compromise or interfere with 

witnesses or make witnesses reluctant to 

cooperate; and lead to suppression, 

alteration, or destruction of evidence. 

(B) From subsections (d) and (f) because 

providing access to investigative records and 

the right to contest the contents of those 

records and force changes to be made to the 

information contained therein would 

seriously interfere with and thwart the 

orderly and unbiased conduct of the 

investigation and impede case preparation. 

Providing access rights normally afforded 

under the Privacy Act would provide the 

subject with valuable information that would 

allow interference with or compromise of 

witnesses or render witnesses reluctant to 

cooperate; lead to suppression, alteration, or 

destruction of evidence; enable individuals 

to conceal their wrongdoing or mislead the 

course of the investigation; and result in the 

secreting of or other disposition of assets that 

would make them difficult or impossible to 

reach in order to satisfy any Government 

claim growing out of the investigation or 

proceeding. 

(C) From subsection (e)(1) because it is not 

always possible to detect the relevance or 

necessity of each piece of information in the 

early stages of an investigation. In some 

cases, it is only after the information is 

evaluated in light of other evidence that its 

relevance and necessity will be clear. 

(D) From subsections (e)(4)(G) and (H) 

because this system of records is compiled 

for investigative purposes and is exempt from 

the access provisions of subsections (d) and 

(f). 

(E) From subsection (e)(4)(I) because to the 

extent that this provision is construed to 

require more detailed disclosure than the 

broad, generic information currently 

published in the system notice, an exemption 

from this provision is necessary to protect the 

confidentiality of sources of information and 

to protect privacy and physical safety of 

witnesses and informants. 

(F) Consistent with the legislative purpose 

of the Privacy Act of 1974, the AF will grant 

access to nonexempt material in the records 

being maintained. Disclosure will be 

governed by AF’s Privacy Regulation, but 

will be limited to the extent that the identity 

of confidential sources will not be 

compromised; subjects of an investigation of 

an actual or potential criminal or civil 

violation will not be alerted to the 

investigation; the physical safety of 

witnesses, informants and law enforcement 

personnel will not be endangered, the 

privacy of third parties will not be violated; 

and that the disclosure would not otherwise 

impede effective law enforcement. Whenever 

possible, information of the above nature will 

be deleted from the requested documents and 

the balance made available. The controlling 

principle behind this limited access is to 

allow disclosures except those indicated 

above. The decisions to release information 

from these systems will be made on a caseby-case basis.

* * * * *

Dated: December 24, 2003. 

L.M. Bynum, 

Alternate OSD Federal Register Liaison 

Officer, Department of Defense.

[FR Doc. 04–24 Filed 1–5–04; 8:45 am] 

BILLING CODE 5001–08–P

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 447

[CMS–2175–IFC] 

RIN 0938–AM20

Medicaid Program; Time Limitation on 

Recordkeeping Requirements Under 

the Drug Rebate Program

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment 

period. 

SUMMARY: On August 29, 2003, we 

published a final rule with comment 

period in the Federal Register that 

finalized two specific provisions: it 

established new 3-year recordkeeping 

requirements for drug manufacturers 

under the Medicaid drug rebate program 

and set a 3-year time limitation during 

which manufacturers must report 

changes to average manufacturer price 

and best price for purposes of reporting 

data to us. In addition, it announced the 

pressing need for codification of 

fundamental recordkeeping 

requirements. On September 26, 2003, 

we issued a correction notice to change 

the effective date of the August 29, 2003 

rule from October 1, 2003 to January 1, 

2004. 

In this interim final rule with 

comment period, we are removing the 3-

year recordkeeping requirements, 

replacing them with 10-year 

recordkeeping requirements on a 

temporary basis, and soliciting 

comments on the 10-year requirements. 

Federal Register / Vol. 69, No. 3 / Tuesday, January 6, 2004 / Rules and Regulations 509

Manufacturers must retain records 

beyond the 10-year period if the records 

are the subject of an audit or a 

government investigation of which the 

manufacturer is aware. These provisions 

contain a sunset date with respect to the 

record retention requirements to ensure 

that we reexamine whether the retention 

rule remain necessary and effective. 

This interim final rule with comment 

period also responds to public 

comments on the August 29, 2003 final 

rule with comment period that pertain 

to the 3-year recordkeeping requirement 

at § 447.534(h).

EFFECTIVE DATE: This rule is effective 

January 1, 2004.

DATES: Comments will be considered if 

we receive them at the appropriate 

address, as provided below, no later 

than 5 p.m. on March 8, 2004.

ADDRESSES: In commenting, please refer 

to file code CMS–2175–IFC. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission or e-mail. 

Mail written comments (one original 

and two copies) to the following address 

ONLY: Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–2175–

IFC, P.O. Box 8018, Baltimore, MD 

21244–8018. 

Please allow sufficient time for mailed 

comments to be timely received in the 

event of delivery delays. 

If you prefer, you may deliver (by 

hand or courier) your written comments 

(one original and two copies) to one of 

the following addresses: Room 445–G, 

Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201, 

or 

Room C5–14–03, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

could be considered late. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:

Marge Watchorn, (410) 786–4361.

SUPPLEMENTARY INFORMATION: Copies: To 

order copies of the Federal Register

containing this document, send your 

request to: New Orders, Superintendent 

of Documents, P.O. Box 371954, 

Pittsburgh, PA 15250–7954. Specify the 

date of the issue requested and enclose 

a check or money order payable to the 

Superintendent of Documents, or 

enclose your Visa or Master Card 

number and expiration date. Credit card 

orders can also be placed by calling the 

order desk at (202) 512–1800 or by 

faxing to (202) 512–2250. The cost for 

each copy is $10. As an alternative, you 

can view and photocopy the Federal 

Register document at most libraries 

designated as Federal Depository 

Libraries and at many other public and 

academic libraries throughout the 

country that receive the Federal 

Register. 

This Federal Register document is 

also available from the Federal Register

online database through GPO access, a 

service of the U.S. Government Printing 

Office. The Web site address is http://

www.access.gpo.gov/nara/index.html.

I. Background 

In this interim final rule with 

comment period, we are removing the 3-

year recordkeeping requirements, 

replacing them with 10-year 

recordkeeping requirements on a 

temporary basis, and soliciting 

comments on the 10-year requirements. 

Manufacturers must retain records 

beyond the 10-year period if the records 

are the subject of an audit or a 

government investigation of which the 

manufacturer is aware. These 

requirements regarding record retention 

will be in effect until December 31, 2004 

or when we publish final recordkeeping 

requirements in the Federal Register, 

whichever occurs first. 

We are also publishing this interim 

final rule with comment period to 

address some of the comments received 

on the final rule with comment period 

we published on August 29, 2003 (68 FR 

51912). Specifically, we are addressing 

comments pertaining to the 3-year 

recordkeeping requirements at 

§ 447.534(h). The 3-year recordkeeping 

requirement for drug manufacturers 

participating in the Medicaid drug 

rebate program has caused a significant 

amount of concern from commenters 

with regard to the rule’s potential effect 

on the False Claims Act (FCA) and other 

possible fraud and abuse violations. 

II. Provisions of the Final Rule With 

Comment Period 

On August 29, 2003, we published a 

final rule with comment period (68 FR 

51912) in the Federal Register that 

finalized two specific provisions: It 

established new recordkeeping 

requirements for drug manufacturers 

under the Medicaid drug rebate program 

and set a 3-year time limitation during 

which manufacturers must report 

changes to average manufacturer price 

and best price for purposes of reporting 

data to us. In addition, it announced the 

pressing need for codification of 

recordkeeping requirements. On 

September 26, 2003, we issued a 

correction notice (68 FR 51912) to delay 

the effective date of the August 29, 2003 

rule from October 1, 2003 to January 1, 

2004. 

III. Analysis of and Responses to Public 

Comments 

We received 12 public comments in 

response to the August 29, 2003 rule. 

We received comments from State 

government officials, representatives of 

the pharmaceutical industry including 

manufacturers, attorneys, consultants, 

provider representatives, and a nonprofit organization. We received 

comments on a variety of topics 

pertaining to the final rule with 

comment period, as well as comments 

pertaining to the general Medicaid drug 

rebate program. For example, several 

commenters raised issues regarding 

disputes under the Medicaid drug rebate 

program, which were not addressed in 

the August 29, 2003 rule. We are not 

responding to comments that pertain to 

the 3-year time limitation for price 

recalculations at this time; we intend to 

respond to those comments in a 

subsequent document that we will 

publish in the Federal Register. In this 

document, we are summarizing and 

responding to those comments that 

pertain to the 3-year recordkeeping 

requirements at § 447.534(h). These 

comments and our responses are 

summarized below: 

Recordkeeping Requirements at 

§ 447.534(h) 

Comment: One commenter noted that 

there is significant crossover between 

data required under the Medicaid drug 

rebate program, section 340B of the 

Public Health Service Act, and section 

603 of the Veterans Health Care Act 

(VHCA). The commenter indicated that 

this rule is inconsistent with the 5-year 

record retention requirement in the 

VHCA. The commenter also requested 

that we define the term, ‘‘authorized 

government agency,’’ as it appeared in 

section IV of the August 29, 2003 rule. 

As written, this term implies that if, for 

example, the Department of Veterans 

Affairs (DVA) determines that a 

manufacturer’s underlying pricing data 

contain errors, then the manufacturer 

must retroactively revise average 

manufacturer price or best price.

510 Federal Register / Vol. 69, No. 3 / Tuesday, January 6, 2004 / Rules and Regulations 

Response: We recognize that there is 

some cross-over between the data 

required for the Medicaid drug rebate 

program, the 340B program, and section 

603 of VHCA. However, our regulation 

is designed to address Medicaid drug 

rebate best price and average 

manufacturer price calculations. Due to 

concerns raised regarding record 

destruction and the fraud and abuse 

violations, we also acknowledge the 

need to increase the record retention 

period and have chosen a longer 10-year 

recordkeeping requirement. We expect 

this longer retention period will 

alleviate concerns regarding inadvertent 

record destruction that might impact the 

340B program or section 603 of VHCA. 

We also note that the FCA exists outside 

the scope of these regulations and 

applies equally to all of the data 

provided to the Federal agencies listed 

and that manufacturers may keep 

records to support their calculations for 

all three programs accordingly. With 

regard to the term, ‘‘authorized 

government agency,’’ our intent was to 

include any agency with oversight 

authority and jurisdiction over the 

Medicaid drug rebate program (for 

example, the Office of the Inspector 

General or the Department of Justice). 

Comment: One commenter asked for 

clarification regarding how a 

manufacturer can provide data 

supporting its position for periods more 

than 12 quarters if those data are not to 

be retained. 

Response: In this rule, we are 

extending the minimum record 

retention requirement from 3 to 10 

years. Therefore, we are requiring that a 

manufacturer retain data in excess of 12 

quarters. Thus, a manufacturer can 

provide data as may be necessary to 

substantiate its calculations. 

Nevertheless, the time limitation for 

pricing recalculations issued in the 

August 29, 2003 rule will go into effect 

on January 1, 2004. 

Comment: One commenter expressed 

concern for manufacturers who find the 

inconsistent recordkeeping 

requirements among the Federal drug 

programs to be confusing. Specifically, 

if manufacturers are bound by 

timeframes longer than 3 years, the 3-

year recordkeeping requirement in the 

August 29, 2003 rule is moot. Since we 

used the 3-year recordkeeping 

requirement as a reason to justify the 3-

year time limitation for price 

recalculations, we need to reconcile 

these differences before moving ahead 

with time limits for pricing changes. 

Response: As noted earlier, we 

acknowledge that different Federal 

programs may have varying standards in 

place with regard to recordkeeping; 

however, we are only regulating the 

recordkeeping requirements for 

Medicaid drug rebate pricing data in 

this rule. We received numerous 

comments suggesting the 3-year 

recordkeeping requirements were too 

short, but none to convince us to 

expand the time limit on pricing 

recalculations. We believe that the 

concerns raised regarding the impact of 

the recordkeeping requirements on the 

FCA and State fraud and abuse 

provisions are compelling. Moreover, 

because manufacturers are in full 

possession of the documents that they 

need to make pricing recalculations, we 

continue to believe that 3 years is an 

adequate timeframe to permit 

manufacturers to recalculate their 

pricing data. Nevertheless, we want to 

offer interested parties an opportunity to 

provide comments about whether a 10-

year recordkeeping requirement is the 

proper timeframe to address the 

concerns raised on this provision. For 

these reasons, we are establishing a 

temporary recordkeeping standard that 

is longer than the time limitation for 

price recalculations promulgated in the 

August 29, 2003 rule and soliciting 

public comments on the longer 

standard. 

Comment: Two commenters urged us 

to address comments received on the 

August 29, 2003 rule and issue a final 

rule in the near future. One commenter 

asked when we will publish a final rule.

Response: We are addressing 

comments that pertain to the provisions 

in the August 29, 2003 rule in this 

interim final rule with comment period, 

which includes a sunset date provision. 

We anticipate that we will issue a final 

rule once we have addressed all the 

comments which we receive on this 

interim rule. 

Comment: Several commenters noted 

strong opposition to the 3-year 

recordkeeping requirement, expressing 

concern with any provision that could 

permit the destruction of potential 

evidence of fraud and thereby interfere 

with efforts to eliminate fraud related to 

the Medicaid program. One commenter 

emphasized the importance of the FCA 

in allowing persons with evidence of 

fraud against Federal programs or 

contracts to bring suit on behalf of the 

government. Another commenter noted 

that requiring drug manufacturers to 

maintain their pricing data for only 3 

years is a regrettable policy choice that 

will impose negative financial burdens 

on providers who participate in the drug 

pricing program under Section 340B (42 

U.S.C. section 256b) of the Public 

Health Service Act. The commenters 

noted that there are dozens of pending 

cases and investigations involving 

allegations of fraudulent pricing 

practices by prescription drug 

manufacturers, many of which look 

back well beyond the last 3 years. In 

addition, commenters noted that there 

are ongoing confidential investigations 

of similar allegations of fraud that are, 

by necessity, conducted without 

notification to the manufacturers. 

Further, qui tam actions have been filed 

under seal throughout the country and 

the preliminary investigation of those 

matters typically takes place without 

notice to the manufacturers. The 

commenters noted that premature 

destruction of documents concerning 

average manufacturer prices and best 

prices could severely hamper these 

investigations. 

Some commenters indicated that a 

record retention requirement of 6 years, 

with carve-outs relating to records and 

data concerning matters under 

investigation, would strike a more 

effective balance between efficiency and 

law enforcement concerns. One 

commenter recommended a 7-year 

record retention requirement. Another 

commenter recommended that we 

promulgate a recordkeeping 

requirement with the same substantive 

standard as that in the FCA: 10 years. 

That commenter further noted that 

anything less than a 10-year 

recordkeeping requirement will 

seriously undermine the FCA’s ability to 

combat fraud against the Medicaid drug 

rebate program. Several commenters 

recommended that we simply remove 

the recordkeeping requirement. 

Response: We concur with 

commenters who indicated that the 3-

year recordkeeping requirement should 

be increased to address law enforcement 

concerns. After further consideration, 

we believe that, due to potential fraud 

and abuse violations and litigation, a 10-

year recordkeeping requirement will be 

more appropriate and sufficient to 

ensure a Federal standard with regard to 

the Medicaid drug rebate program that 

will not hinder the activities of Federal 

and State law enforcement officials. 

Nonetheless, we are soliciting public 

comment on whether a 10-year 

recordkeeping requirement is the proper 

timeframe to address the concerns 

raised on this provision. 

Comment: One commenter questioned 

the true benefit to manufacturers from 

the record retention provision in the 

rule if adjustments can be made to 

periods older than 3 years under a 

government investigation. 

Response: We recognize the 

commenter’s concerns and note that this 

provision will have no effect on a 

manufacturer that correctly calculates 

its average manufacturer price and best 

Federal Register / Vol. 69, No. 3 / Tuesday, January 6, 2004 / Rules and Regulations 511

price. However, we held open the 

exception to the 3-year period to give all 

government agencies with oversight 

authority the opportunity to review 

manufacturer records and to prevent a 

manufacturer from claiming that the 

original 3-year recordkeeping timeframe 

in any way protected that manufacturer 

from needing to report correct data. 

With the new 10-year recordkeeping 

requirement and its consistency with 

the FCA, we believe we have made the 

relationship even clearer.

Comment: In light of ongoing 

government investigations, one 

commenter asked whether we still 

advise manufacturers to discard records 

that are older than 3 years. 

Response: At no time have we advised 

manufacturers to discard Medicaid drug 

rebate records. This rule addresses the 

retention of manufacturer pricing 

records under the Medicaid drug rebate 

program and is not designed to provide 

advice regarding document destruction. 

We now recognize that the 3-year record 

retention requirement set forth in the 

August 29, 2003 rule should be 

extended in order to address concerns 

and potential conflicts with Federal and 

State law enforcement efforts. 

We believe that the 10-year 

recordkeeping requirement is necessary 

in light of the unique nature of the 

Medicaid drug rebate program. In 

particular, we are concerned that 

because of the way the drug rebate 

program operates, and the complexity of 

drug pricing, the program is potentially 

more susceptible to continuing errors, 

fraud or abuse. For example, while other 

programs or activities may be subject to 

individual, one-time errors, fraud or 

abuse, the drug rebate program could be 

more susceptible to such activities via 

ongoing utilization of a practice, 

procedure or formula instituted in the 

past, that is perpetuated and remains 

undetected. In accordance with section 

1927 of the Act and the drug rebate 

agreement, manufacturers that 

participate in the drug rebate program 

submit best price and average 

manufacturer price with respect to their 

drugs on a quarterly basis. 

Manufacturers, not the Secretary, are in 

possession of the documentation used to 

substantiate those prices. We believe 

that the 10-year recordkeeping 

requirement is necessary in order to 

preserve critical pricing records and that 

a timeframe less than 10 years could 

interfere with efforts to eliminate the 

documented fraud and abuse related to 

the drug rebate program. 

IV. Provisions of the Interim Final 

Regulations With Comment Period 

This interim final rule with comment 

period removes the 3-year 

recordkeeping requirement issued in the 

August 29, 2003 rule and replaces it 

with a 10-year recordkeeping 

requirement from January 1, 2004 

through December 31, 2004. This 

provision will be set forth in 42 CFR 

part 447 in a new subpart I entitled 

‘‘Payment for Outpatient Prescription 

Drugs Under Drug Rebate Agreements’’

at § 447.534(h). Under the 10-year 

recordkeeping requirement, a drug 

manufacturer must retain records for 10 

years from the date the manufacturer 

reports that rebate period’s data to us. In 

addition, a manufacturer must retain 

data beyond the 10-year period if the 

records are the subject of an audit or a 

government investigation and if the 

audit findings or investigation related to 

the average manufacturer price and best 

price have not been resolved. 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60-

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We have, however, submitted a 

request for emergency approval of the 

information collection requirements in 

this final rule. We are requesting an 

emergency approval because the 

collection of this information is needed 

before the expiration of the normal time 

limits under OMB’s regulations at 5 CFR 

part 1320, to ensure compliance with 

the False Claims Act (FCA). We could 

not reasonably comply with normal 

clearance procedures because public 

harm is likely to result if the agency 

cannot enforce the requirements of the 

FCA because records may be destroyed. 

As stated earlier in this preamble, we 

are concerned that, without this final 

rule and implementation of the longer 

record retention requirement, 

manufacturers participating in the 

Medicaid drug rebate program will 

destroy records concerning drug price 

calculations, as well as data supporting 

those calculations after 3 years. If the 

requirements cannot be implemented 

immediately, there is a chance that 

manufacturers could minimize their 

potential civil liability under the FCA 

by destroying their Medicaid rebate 

records through December 31, 2000. As 

a result, the effective use of the FCA to 

investigate fraud regarding the Medicaid 

drug rebate program could be severely 

limited at a considerable cost to the 

Federal and State treasuries.

We are requesting OMB review and 

approval of this collection, with a 180-

day approval period. During this 180-

day period, we will publish a separate 

Federal Register notice announcing the 

initiation of an extensive 60-day agency 

review and public comment period on 

these requirements. We will submit the 

requirements for OMB review and an 

extension of this emergency approval. 

Therefore, we are soliciting public 

comment on each of these issues for the 

following section of this document that 

contains information collection 

requirements: 

Section 447.534 of this document 

contains the following information 

collection requirements. 

Under paragraph (h) of § 447.534, 

there are two recordkeeping 

requirements: 

(1)(i) A manufacturer must retain 

records (written or electronic) for 10 

years from the date the manufacturer 

reports that rebate period’s data. The 

records must include these data and any 

other materials from which the 

calculations of the average manufacturer 

price and best price are derived, 

including a record of any assumptions 

made in the calculations. The 10-year 

timeframe applies to a manufacturer’s 

quarterly submission of pricing data as 

well as any revised pricing data 

subsequently submitted to us. 

(ii) A manufacturer must retain 

records beyond the 10-year period if 

both of the following circumstances 

exist: (A) The records are the subject of 

an audit or of a government 

investigation related to pricing data that 

are used in average manufacturer price 

or best price of which the manufacturer 

is aware, and (B) The audit findings 

related to the average manufacturer 

price and best price have not been 

resolved. 

These information collection 

requirements, except for the timeframe, 

already exist. The recordkeeping 

requirements are in the contract 

512 Federal Register / Vol. 69, No. 3 / Tuesday, January 6, 2004 / Rules and Regulations 

between the drug manufacturer and 

CMS, with the retention period not 

specified. The regulation merely revises 

timeframes specified for maintaining 

records in the current regulation. 

The burden associated with the 

recordkeeping is minimal. While we 

have no data on the staffing costs 

associated with retaining the data, we 

estimate that it will cost each 

manufacturer no more than $1.00, the 

maximum cost of a compact disc for 

electronic storage per manufacturer, or a 

total cost maximum cost of $500 per 

year. (We base the estimate on the 

assumption that the manufacturers will 

store 1 year’s data per disc, although it 

is not necessary to have one disc per 

year.) The cost to manufacturers that 

maintain paper copies will be even less 

as they will just have to keep their paper 

copy of what they submit to us. Again, 

the staffing costs cannot be estimated at 

this time. 

We will be collecting data on the cost 

of staffing. 

As required by section 3504(h) of the 

Paperwork Reduction Act of 1995, we 

have submitted a copy of this document 

to the Office of Management and Budget 

(OMB) for its review of these 

information collection requirements. 

If you comment on these information 

collection and recordkeeping 

requirements, please mail copies 

directly to the following:

Centers for Medicare & Medicaid 

Services, Office of Strategic 

Operations and Regulatory Affairs, 

Regulations Development Group, 

Attn: Julie Brown, CMS–2175–IFC, 

Room C5–14–03, 7500 Security 

Boulevard, Baltimore, MD 21244–

1850. 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New 

Executive Office Building, 

Washington, DC 20503, Attn: 

Brenda Aguilar, CMS Desk Officer.

Comments submitted to OMB may 

also be emailed to the following 

address: email: baguilar@omb.eop.gov; 

or faxed to OMB at (202) 395–6974.

VI. Good Cause To Waive the 30-Day 

Delay in Effective Date 

In accordance with section 553(d) of 

the Administrative Procedure Act (5 

U.S.C. 553(d)), final rules ordinarily are 

not effective until at least 30 days after 

their publication in the Federal 

Register. This 30-day delay in effective 

date can be waived, however, if an 

agency finds good cause that the delay 

is impracticable, unnecessary, or 

contrary to the public interest, and the 

agency incorporates a statement of the 

finding and its reasons in the rule 

issued. 

In this rule, we are removing the 3-

year recordkeeping requirement from 

the August 29, 2003 rule and replacing 

it with a 10-year recordkeeping 

requirement for manufacturers that 

participate in the Medicaid drug rebate 

program. Due to concerns regarding the 

FCA and the potential destruction of 

drug pricing records, we find good 

cause to waive the 30-day delay in the 

effective date of the provision in this 

rule revising the record retention 

requirement. As discussed below, 

failure to waive the delay in effective 

date would be contrary to the public 

interest. The FCA establishes civil 

liability for persons or entities who 

knowingly submit false or fraudulent 

claims for Federal funds. Essential to 

the strength of the FCA are its qui tam 

whistleblower provisions, which allow 

persons with evidence of fraud against 

Federal programs or contracts to bring 

suit on behalf of the government. Qui 

tam actions are filed under seal and 

preliminary investigations often take 

place without notice to manufacturers. 

While the August 29, 2003 rule would 

only require manufacturers to keep drug 

pricing records 3 years following the 

date the manufacturer first reported the 

data to us for purposes of average 

manufacturer price and best price, it 

could be misinterpreted to permit these 

records to be discarded for other 

purposes. As noted, the August 29, 2003 

rule would require manufacturers to 

retain earlier records if they were aware 

of an unresolved audit or government 

investigation concerning the 

manufacturers’ average manufacturer 

price or best price. However, since the 

manufacturer is often unaware of qui 

tam investigations, we are concerned 

that, without this final rule, 

manufacturers participating in the 

Medicaid drug rebate program would 

erroneously conclude that they could 

discard records concerning drug price 

calculations, as well as data supporting 

those calculations that are subject to the 

FCA and other fraud laws. If the rule is 

not revised, there is a chance that 

manufacturers would seek to minimize 

their potential civil liability under the 

FCA by discarding their Medicaid rebate 

records through December 31, 2000. As 

a result, the effective use of the FCA to 

investigate fraud regarding the Medicaid 

drug rebate program could be severely 

limited at a considerable cost to the 

Federal and State treasuries. 

Accordingly, we believe there is a 

compelling public interest to waive the 

30-day delay in effective date for this 

revision. 

VII. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), the Regulatory 

Flexibility Act (RFA) (September 16, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

Executive Order 12866 (as amended 

by Executive Order 13258, which 

merely assigns responsibility of duties) 

directs agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). We 

believe this rule will not have an 

economically significant effect. We 

believe the rule will result in neither 

costs nor savings to the Medicaid 

program and that additional costs to 

drug manufacturers will be minimal. We 

do not consider this rule to be a major 

rule.

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and 

government agencies. Most hospitals 

and most other providers and suppliers 

are small entities, either by nonprofit 

status or by having revenues of $6 

million to $29 million or less in any 1 

year. For purposes of the RFA, 

pharmaceutical manufacturers with 750 

or fewer employees are considered 

small businesses according to the Small 

Business Administration’s size 

standards matched to the North 

American Industry Classification 

System, effective October 1, 2002, http:/

/www.sba.gov/size/sizetable2002.html). 

Use of the Small Business 

Administration’s size standards 

matched to North American Industry 

Classification System is in compliance 

with the Small Business 

Administration’s regulation that set 

forth size standards for health care 

industries at 65 FR 69432. Individuals 

and States are not included in the 

definition of a small entity. Because 

pharmaceutical manufacturers are not 

required to report their number of 

employees to the Small Business 

Administration, we are unable to 

determine how many of them are 

Federal Register / Vol. 69, No. 3 / Tuesday, January 6, 2004 / Rules and Regulations 513

considered small entities. This rule will 

not have a significant impact on small 

businesses because although some 

pharmaceutical manufacturers may be 

small businesses, we estimated that the 

cost to manufacturers will be minimal, 

as described in section VII.B below. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a Metropolitan Statistical Area and has 

fewer than 100 beds. This rule will not 

have a significant impact on small rural 

hospitals because the provisions 

contained in this final rule do not 

pertain to hospitals. Section 202 of the 

Unfunded Mandates Reform Act of 1995 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule that may result in 

expenditure in any 1 year by State, 

local, or tribal governments, in the 

aggregate, or by the private sector, of 

$110 million. We anticipate this rule 

will not impact State governments or 

the private sector.

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

We do not anticipate this rule will 

impose direct requirement costs on 

State governments. 

B. Anticipated Effects 

1. Effects on Drug Manufacturers 

We do not collect information on the 

costs associated with manufacturer 

recordkeeping under the Medicaid drug 

rebate program. Therefore, in the 

absence of such information, we derived 

an estimate based on our annual costs 

of storing electronic pricing data that we 

receive from approximately 500 drug 

manufacturers. We store drug product 

data, including pricing information, for 

approximately 55,000 drug products. 

Over the course of the 12 years the 

Medicaid drug rebate program has been 

in existence, we have gathered nearly 

250 megabytes of information. This 

information fits on one compact disc. 

The cost of one blank compact disc is 

less than $1. We did not have a 

reasonable proxy available to estimate 

the staffing costs associated with 

maintaining the data, so our estimate 

does not include these costs. 

On the whole, we believe this 

approach is reasonable because it is our 

understanding that these records are 

maintained by most manufacturers in an 

electronic format, while smaller 

companies may maintain their pricing 

records in written format. In order to 

more accurately evaluate the fiscal 

impact of this provision, we are 

requesting that manufacturers provide 

us with information on the costs they 

would expect to incur pursuant to 

retaining records for a 10-year period. 

To the extent possible, we ask that 

manufacturers make an effort to 

distinguish between the cost of meeting 

the 10-year recordkeeping requirement 

versus other recordkeeping 

requirements that may apply to the 

same records. 

We do not anticipate that this rule 

will adversely affect a drug 

manufacturer’s participation in the 

Medicaid Drug Rebate program or 

impact the current level of access and 

availability of prescription drugs for 

Medicaid beneficiaries. There is no 

impact on contractors or providers. 

2. Effects on the Medicaid Program 

We are unable to quantitatively 

address the burden to States with 

respect to recordkeeping. This rule will 

not adversely affect a State’s ability to 

obtain manufacturers’ rebates or impact 

the current level of access and 

availability of prescription drugs for 

Medicaid beneficiaries. There is no 

impact on Medicaid providers or 

contractors. 

C. Alternatives Considered 

Retain the 3-year recordkeeping 

provision in the August 29, 2003 final 

rule with comment period.

We considered retaining the 3-year 

recordkeeping provision in the August 

29, 2003 final rule with comment 

period. However, we believe it is 

necessary to replace the 3-year 

provision with a 10-year provision to 

address concerns raised by commenters 

regarding Federal and State 

investigations under the FCA and 

related anti-fraud provisions. 

Establish a different time limitation.

Another alternative would be to 

establish a longer or a shorter 

recordkeeping requirement. We did not 

choose a longer recordkeeping 

timeframe because we believe a 10-year 

period will offer immediate protection 

to address situations where 

investigations are under seal in qui tam 

actions. Further, the exception to the 10-

year requirement adequately addresses 

situations where investigations known 

to manufacturers are not yet resolved. 

We did not choose a shorter 

recordkeeping timeframe in this rule 

because we are concerned that such a 

timeframe could be misconstrued to 

lead a manufacturer to believe it could 

prematurely destroy vital evidence in a 

case of fraud against the government. 

Finalize the 10-year requirement 

without a sunset date provision.

We considered finalizing the 10-year 

recordkeeping requirement without a 

sunset date provision. However, we 

believe that it is important to offer the 

regulated community an opportunity to 

provide comments on the impact that 

such a provision will have before we 

finalize the 10-year recordkeeping 

requirement beyond the December 31, 

2004 date. In addition, we want to offer 

interested parties an opportunity to 

provide comments about whether a 10-

year recordkeeping requirement is the 

proper timeframe to address the 

concerns raised on this provision. 

D. Conclusion 

For these reasons, we are not 

preparing analyses for either the RFA or 

section 1102(b) of the Act because we 

have determined, and we certify, that 

this rule will not have a significant 

economic impact on a substantial 

number of small entities or a significant 

impact on the operations of a substantial 

number of small rural hospitals. 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget.

List of Subjects in 42 CFR Part 447 

Accounting, Administrative practice 

and procedure, Drugs, Grant programs—

health, Health facilities, Health 

professions, Medicaid, Reporting and 

recordkeeping requirements, Rural 

areas.

■ For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services amends 42 CFR 

chapter IV part 447 as set forth below:

PART 447—PAYMENTS FOR 

SERVICES

■ 1. The authority citation for part 447 

continues to read as follows:

Authority: Sec. 1102 of the Social Security 

Act (42 U.S.C. 1302).

Subpart I—Payment for Outpatient 

Prescription Drugs Under Drug Rebate 

Agreements

■ 2. In § 447.534, paragraph (h)(1) is 

revised to read as follows:

514 Federal Register / Vol. 69, No. 3 / Tuesday, January 6, 2004 / Rules and Regulations 

§ 447.534 Manufacturer reporting 

requirements.

* * * * *

(h) Recordkeeping requirements. (1)(i) 

A manufacturer must retain records 

(written or electronic) for 10 years from 

the date the manufacturer reports that 

rebate period’s data to CMS. The records 

must include these data and any other 

materials from which the calculations of 

the average manufacturer price and best 

price are derived, including a record of 

any assumptions made in the 

calculations. The 10-year timeframe 

applies to a manufacturer’s quarterly 

submission of pricing data as well as 

any revised pricing data subsequently 

submitted to CMS.

(ii) A manufacturer must retain 

records beyond the 10-year period if 

both of the following circumstances 

exist: 

(A) The records are the subject of an 

audit or of a government investigation 

related to pricing data that are used in 

average manufacturer price or best price 

of which the manufacturer is aware. 

(B) The audit findings or investigation 

related to the average manufacturer 

price and best price have not been 

resolved. 

(2) The provisions in paragraph (h)(1) 

of this section concerning record 

retention terminate on December 31, 

2004.

* * * * *

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) 

Dated: December 29, 2003. 

Dennis G. Smith, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: December 29, 2003. 

Tommy G. Thompson, 

Secretary.

[FR Doc. 03–32329 Filed 12–31–03; 12:47 

pm] 

BILLING CODE 4120–01–P

DEPARTMENT OF HOMELAND 

SECURITY 

Federal Emergency Management 

Agency 

44 CFR Part 65 

[Docket No. FEMA–D–7549] 

Changes in Flood Elevation 

Determinations

AGENCY: Federal Emergency 

Management Agency (FEMA), 

Emergency Preparedness and Response 

Directorate, Department of Homeland 

Security.

ACTION: Interim rule.

SUMMARY: This interim rule lists 

communities where modification of the 

Base (1% annual chance) Flood 

Elevations (BFEs) is appropriate because 

of new scientific or technical data. New 

flood insurance premium rates will be 

calculated from the modified BFEs for 

new buildings and their contents.

DATES: These modified BFEs are 

currently in effect on the dates listed in 

the table and revise the Flood Insurance 

Rate Map(s) (FIRMs) in effect prior to 

this determination for each listed 

community. 

From the date of the second 

publication of these changes in a 

newspaper of local circulation, any 

person has ninety (90) days in which to 

request through the community that the 

Director reconsider the changes. The 

modified elevations may be changed 

during the 90-day period.

ADDRESSES: The modified BFEs for each 

community are available for inspection 

at the office of the Chief Executive 

Officer of each community. The 

respective addresses are listed in the 

table below.

FOR FURTHER INFORMATION CONTACT:

Doug Bellomo, P.E., Hazard 

Identification Section, Emergency 

Preparedness and Response Directorate, 

FEMA, 500 C Street SW., Washington, 

DC 20472, (202) 646–2903.

SUPPLEMENTARY INFORMATION: The 

modified BFEs are not listed for each 

community in this interim rule. 

However, the address of the Chief 

Executive Officer of the community 

where the modified BFE determinations 

are available for inspection is provided. 

Any request for reconsideration must 

be based upon knowledge of changed 

conditions, or upon new scientific or 

technical data. 

The modifications are made pursuant 

to Section 201 of the Flood Disaster 

Protection Act of 1973, 42 U.S.C. 4105, 

and are in accordance with the National 

Flood Insurance Act of 1968, 42 U.S.C. 

4001 et seq., and with 44 CFR part 65. 

For rating purposes, the currently 

effective community number is shown 

and must be used for all new policies 

and renewals. 

The modified BFEs are the basis for 

the floodplain management measures 

that the community is required to either 

adopt or to show evidence of being 

already in effect in order to qualify or 

to remain qualified for participation in 

the National Flood Insurance Program 

(NFIP). 

These modified elevations, together 

with the floodplain management criteria 

required by 44 CFR 60.3, are the 

minimum that are required. They 

should not be construed to mean that 

the community must change any 

existing ordinances that are more 

stringent in their floodplain 

management requirements. The 

community may at any time enact 

stricter requirements of its own, or 

pursuant to policies established by other 

Federal, state or regional entities.

The changes in BFEs are in 

accordance with 44 CFR 65.4. 

National Environmental Policy Act.

This rule is categorically excluded from 

the requirements of 44 CFR part 10, 

Environmental Consideration. No 

environmental impact assessment has 

been prepared. 

Regulatory Flexibility Act. The 

Mitigation Division Director of the 

Emergency Preparedness and Response 

Directorate certifies that this rule is 

exempt from the requirements of the 

Regulatory Flexibility Act because 

modified BFEs are required by the Flood 

Disaster Protection Act of 1973, 42 

U.S.C. 4105, and are required to 

maintain community eligibility in the 

NFIP. No regulatory flexibility analysis 

has been prepared. 

Regulatory Classification. This 

interim rule is not a significant 

regulatory action under the criteria of 

section 3(f) of Executive Order 12866 of 

September 30, 1993, Regulatory 

Planning and Review, 58 FR 51735. 

Executive Order 12612, Federalism.

This rule involves no policies that have 

federalism implications under Executive 

Order 12612, Federalism, dated October 

26, 1987. 

Executive Order 12778, Civil Justice 

Reform. This rule meets the applicable 

standards of Section 2(b)(2) of Executive 

Order 12778.

List of Subjects in 44 CFR Part 65 

Flood insurance, floodplains, 

reporting and recordkeeping 

requirements.

■ Accordingly, 44 CFR part 65 is 

amended to read as follows:

PART 65—[AMENDED]

■ 1. The authority citation for part 65 

continues to read as follows:

Authority: 42 U.S.C. 4001 et seq.; 

Reorganization Plan No. 3 of 1978, 3 CFR, 

1978 Comp., p. 329; E.O. 12127, 44 FR 19367, 

3 CFR, 1979 Comp., p. 376.

§ 65.4 [Amended]

■ 2. The tables published under the 

authority of § 65.4 are amended as 

follows: