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[Federal Register Volume 75, Number 219 (Monday, November 15, 2010)]
[Rules and Regulations]
[Pages 69591-69597]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-28649]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 447

[CMS-2238-F2]
RIN 0938-AP67

Medicaid Program; Withdrawal of Determination of Average 
Manufacturer Price, Multiple Source Drug Definition, and Upper Limits 
for Multiple Source Drugs

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

ACTION: Final rule.

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SUMMARY: This final rule withdraws two provisions from the ``Medicaid 
Program; Prescription Drugs'' final rule (referred to hereafter as 
``AMP final rule'') published in the July 17, 2007 Federal Register. 
The provisions we are withdrawing are as follows: The determination of 
average manufacturer price, and the Federal upper limits for multiple 
source drugs. We are also withdrawing the definition of ``multiple 
source drug'' as it was revised in the ``Medicaid Program; Multiple 
Source Drug Definition'' final rule published in the October 7, 2008 
Federal Register.

DATES: Effective Date: These regulations are effective on December 15, 
2010.

FOR FURTHER INFORMATION CONTACT: Wendy Tuttle, (410) 786-8690.

SUPPLEMENTARY INFORMATION:

I. Background

    On September 3, 2010, we published a proposed rule (75 FR 54073) in 
the Federal Register to withdraw two provisions from the ``Medicaid 
Program; Prescription Drugs'' final rule published in the July 17, 2007 
Federal Register (72 FR 39142) (referred to hereafter as ``AMP final 
rule''). The provisions we proposed to withdraw are as follows:
     Section 447.504 ``Determination of AMP.''
     Section 447.514 ``Upper limits for multiple source 
drugs.''

We also proposed to withdraw the definition of ``multiple source drug'' 
as it was revised in the ``Medicaid Program; Multiple Source Drug 
Definition'' final rule published in the October 7, 2008 Federal 
Register (73 FR 58491).
    The AMP final rule, published in the July 17, 2007 Federal Register 
(72 FR 39142), implemented sections 6001(a) through (d), 6002, and 6003 
of the Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted on 
February 8, 2006) (DRA) as well as codified parts of

[[Page 69592]]

section 1927 of the Social Security Act (the Act) that pertain to 
requirements for drug manufacturers' calculation and reporting of AMP 
and best price, and revised existing regulations that set FULs for 
certain covered outpatient drugs. The AMP final rule also implemented 
section 1903(i)(10) of the Act, as revised by the DRA with regard to 
the denial of FFP in expenditures for certain physician administered 
drugs. Finally, the AMP final rule addressed other provisions of the 
Medicaid Drug Rebate Program.
    On November 7, 2007, a complaint was filed with the United States 
District Court for the District of Columbia by the National Association 
of Chain Drug Stores (NACDS) and the National Community Pharmacists 
Association (NCPA) (collectively, the Plaintiffs), which alleged that 
the AMP final rule unlawfully changed the methodology by which 
pharmacies are reimbursed for dispensing prescription drugs to Medicaid 
patients. On December 19, 2007, the Court issued a preliminary 
injunction which prohibits CMS from ``[u]ndertaking any and all action 
to implement the AMP Rule to the extent such action affects Medicaid 
reimbursement rates for retail pharmacies under the Medicaid program,'' 
and, subject to certain exceptions, prohibits CMS from ``[p]osting any 
AMP data on a public Web site or otherwise disclosing any AMP data to 
any individual or entities.'' The preliminary injunction, however, does 
not enjoin implementation of the AMP final rule as it relates to the 
calculation of rebates for the Medicaid rebate program, or the 
disclosure of AMP data to States as necessary for the administration of 
that program.
    In response to this litigation, CMS published an interim final rule 
with comment period on March 14, 2008, followed by a final rule on 
October 7, 2008 to revise the definition of multiple source drug to 
better conform to the statutory definition of ``multiple source drug'' 
found in section 1927(k)(7) of the Act, and to inform the public of the 
procedures and practices the Agency would follow to ensure compliance 
with those statutory provisions. The Plaintiffs, however, amended their 
filing with the Court contending that the revised multiple source drug 
definition and implementation procedures remained inconsistent with the 
statute.
    On July 15, 2008, the Medicare Improvements for Patients and 
Providers Act of 2008 (Pub. L. 110-275) (MIPPA) was enacted. Section 
203 of MIPPA prohibited HHS from imposing FULs prior to October 1, 2009 
for multiple source drugs under Sec.  447.514(b) as published in the 
July 17, 2007 AMP final rule. In accordance with MIPPA, CMS resumed 
publishing FULs for multiple source drugs using the methodology in 
Sec.  447.332 as in effect on December 31, 2006. The methodology in 
Sec.  447.332 applied through September 30, 2009.
    As a result of the lawsuit, and subsequent preliminary injunction, 
CMS has been enjoined from implementing the AMP-based FULs that the DRA 
had required. However, manufacturers were not affected by the 
injunction and continue to calculate and report AMP for the purpose of 
Medicaid rebates, in accordance with the determination of AMP as 
specified in the AMP final rule.
    Section 2503(a) of the Patient Protection and Affordable Care Act 
(Affordable Care Act) (Pub. L. 111-148, enacted on March 23, 2010), 
amends section 1927(e) of the Act by revising the Federal upper 
reimbursement limit to be no less than 175 percent of the weighted 
average (determined on the basis of utilization) of the most recently 
reported monthly AMPs for pharmaceutically and therapeutically 
equivalent multiple source drug products that are available for 
purchase by retail community pharmacies on a nationwide basis. It also 
amends section 1927(k) of the Act by revising the definitions of AMP 
and multiple source drug. In addition, it adds to section 1927(k) of 
the Act definitions of the terms ``retail community pharmacy'' and 
``wholesaler,'' and eliminates the term ``retail pharmacy class of 
trade.'' The amendments made by section 2503(a) of the Affordable Care 
Act, as amended by section 1101(c) of the Health Care and Education 
Reconciliation Act (Pub. L. 111-152, enacted on March 30, 2010) and 
section 202 of the FAA Air Transportation Modernization and Safety 
Improvement Act (Pub. L. 111-226, enacted on August 10, 2010), were 
effective October 1, 2010.

II. Provisions of the Proposed Regulations

    In the proposed rule published on September 3, 2010, we proposed 
the following revisions to the AMP final rule published on July 17, 
2007:
     Section 447.504, ``Determination of AMP,'' should be 
withdrawn in its entirety;
     Section 447.514, ``Upper limits for multiple source 
drugs,'' should be withdrawn in its entirety; and
     The definition of ``multiple source drug'' in Sec.  
447.502, ``Definitions'' (as it was amended by the Multiple Source Drug 
rule published on October 7, 2008), should be withdrawn.
    We proposed that the terms ``average manufacturer price'' and 
``multiple source drug'' be defined in accordance with section 1927 of 
the Act, including changes made by section 2503 of the Affordable Care 
Act, as amended by the Health Care and Education Reconciliation Act, 
and the FAA Air Transportation Modernization and Safety Improvement 
Act. In particular, drug manufacturers would be advised to base their 
AMP calculations on the definitions set forth in section 1927 of the 
Act, instead of on the AMP and AMP-related definitions provided in 
existing regulations and guidance.
    Additionally, we proposed to revise three sections within the AMP 
final rule that make reference to the sections being proposed for 
withdrawal. Section 447.510 ``Requirements for manufacturers,'' makes 
reference to Sec.  447.504 ``Determination of AMP,'' and Sec.  447.512 
``Drugs: Aggregate upper limits for payment,'' and Sec.  447.518 
``State plan requirements,'' make reference to Sec.  447.514 ``Upper 
limits for multiple source drugs. We proposed conforming regulatory 
amendments to those sections.

III. Analysis of and Responses to Public Comments

    We received 16 comments in response to the September 3, 2010 
proposed rule. We received comments from drug manufacturers, membership 
organizations, law firms, pharmacy benefit managers, a consulting firm, 
and a not-for-profit organization. A summary of the issues and our 
responses follow:

General Comments

    Comment: Many commenters expressed general support for the 
provisions of the proposed rule. One commenter commended the agency's 
withdrawal proposal and commitment to develop regulations that will 
implement provisions of section 2503 of the Affordable Care Act. 
Another commenter stated that they believe it is appropriate that CMS 
withdraw these sections of the regulation as Congress recently amended 
several sections of section 1927 in the Affordable Care Act. One 
commenter applauded the Agency for moving forward with withdrawing the 
provisions of the AMP final rule as well as the Multiple Source Drug 
rule.
    Response: We appreciate the comments in support of the withdrawal 
of the determination of AMP and the upper limits for multiple source 
drugs provisions as well as the withdrawal of the definition of 
multiple source drug. CMS is committed to developing further 
regulations that will provide the necessary guidance to all parties

[[Page 69593]]

impacted by the revisions made to the Medicaid Drug Rebate Program by 
the Affordable Care Act.

Definition of Bona fide Service Fees

    Comment: We received several comments regarding the definition of 
bona fide service fees. A few commenters indicated the need for CMS to 
ensure that when it promulgates new regulations to implement the 
changes made by the Affordable Care Act, it seeks stakeholder input and 
provides further clarity on the treatment of bona fide service fees for 
the purposes of AMP reporting. Two commenters expressed concern that in 
the proposed rule, CMS did not propose to withdraw the definition of 
bona fide service fee. These commenters recommended that CMS also 
withdraw the definition of bona fide service fee to be consistent with 
the definition of bona fide service fee enacted by the Affordable Care 
Act. Other commenters recommended that despite the change the 
Affordable Care Act makes to the definition of bona fide service fee, 
the existing definition should remain intact and unchanged. One 
commenter noted that the language in the Affordable Care Act 
presupposes a background definition of bona fide service fees that 
would be applied to the named fees and any others paid by a 
manufacturer. Another commenter recommended that CMS provide 
clarification on how manufacturers should evaluate the language in the 
Affordable Care Act to be consistent with the historical definition.
    Response: We appreciate the comments pertaining to bona fide 
service fees. At this time, we believe it would be inappropriate to 
withdraw the definition of bona fide service fee from the AMP final 
rule because the definition of bona fide service fee that is in Sec.  
447.502 ``Definitions'' was intended to apply to both AMP and best 
price calculations. While the Determination of AMP (Sec.  447.504) is 
being withdrawn, at this time, no change is being made to the 
Determination of Best Price (Sec.  447.505). Therefore, we see no need 
to withdraw the definition of bona fide service fees. We do note, 
however, that the definition of bona fide service fee at Sec.  447.502 
should not be used in the calculation of AMP. Issues related to the 
Affordable Care Act's treatment of bona fide service fees will be 
addressed in future rulemaking.

Definition of Multiple Source Drug

    Comment: We received a few comments on the definition of ``multiple 
source drug.'' One commenter indicated that an accurate definition of 
``multiple source drug'' is critical to the implementation of the 
provisions of the Affordable Care Act. Two commenters stated that CMS 
should allow for public review and comment on a definition for what 
constitutes a ``multiple source drug'' that is available for purchase 
by retail community pharmacies on a nationwide basis.
    Response: CMS continues to believe that the definition of 
``multiple source drug'' in Sec.  447.502 should be withdrawn in light 
of changes to the relevant statutory language in the Affordable Care 
Act. In the absence of Federal guidance or regulation, manufacturers 
should rely on section 1927(k)(7) of the Act, as amended by the 
Affordable Care Act, for the definition of ``multiple source drug.''

Withdrawal of Determination of AMP (Sec.  447.504)

    Comment: We received one comment indicating support for the 
position that AMP continue to be calculated using the current 
regulation (42 CFR 447.504(g)(1)). This commenter indicated that if CMS 
were to change the definition of AMP and therefore require 
manufacturers to purchase data from wholesalers in order to calculate 
AMP, it would be a substantial burden and expense and could result in 
less accurate data.
    Response: CMS interpreted this comment to mean the commenter 
disagreed with the withdrawal of Sec.  447.504 in its entirety since 
the commenter specifically mentioned Sec.  447.504(g)(1) in support of 
continuing to calculate AMP using the current regulation. We appreciate 
this comment, but in light of the changes in relevant statutory 
language, CMS continues to believe that withdrawing Sec.  447.504 in 
its entirety is the appropriate action at this time.

Monthly AMP Calculations

    Comment: One commenter suggested that CMS modify the quarterly AMP 
calculation requirement under Sec.  447.504(i)(2) by eliminating the 
requirement that manufacturers report monthly AMP for single source 
drugs.
    Response: In light of the changes in relevant statutory language 
made by the Affordable Care Act, we continue to believe it is necessary 
to withdraw all of Sec.  447.504 at this time. In addition, we are not 
making further changes to the monthly AMP reporting requirements in 
this final rule.

Quarterly AMP Calculations

    Comment: One commenter requested that CMS confirm the methodology 
for calculating quarterly AMPs stating that the proposed rule would 
delete the current provision (42 CFR Sec.  447.504(i)(2)) that provides 
that the ``[q]uarterly AMP is calculated as a weighted average of the 
monthly AMPs in the quarter.'' This commenter requested clarification 
on whether manufacturers should continue to calculate quarterly AMPs as 
a function of the monthly AMPs or whether a separate calculated 
quarterly AMP would be permitted or required.
    Response: CMS recognizes that with the deletion of Sec.  447.504 
Determination of AMP, manufacturers will have questions regarding the 
calculation of AMP, including monthly and quarterly AMP calculations. 
Manufacturers should rely on the statutory language found at section 
1927(k)(1) of the Act, as amended by the Affordable Care Act, and 
regulations (except those regulations or portions thereof have been 
withdrawn).

Customary Prompt Pay Discounts

    Comment: We received a few comments regarding the definition of 
``customary prompt pay discounts.'' One commenter noted that the 
removal of Sec.  447.504 would remove the definition of ``customary 
prompt pay discounts'' and would therefore create ambiguity as to 
whether a discount is customary. The commenter suggested that the 
definition of ``customary prompt pay discounts'' should remain in the 
regulation. Another commenter requested that CMS confirm that when it 
issues future regulations, it does not intend to change the definition 
of ``customary prompt pay discounts,'' which the proposed rule would 
withdraw.
    Response: Given the amendments made by the Affordable Care Act, we 
continue to believe that withdrawing Sec.  447.504 in its entirety is 
the appropriate action at this time. We do expect to address this issue 
in future rulemaking. Until such time as those rules are issued and 
finalized, manufacturers should operate consistent with the Medicaid 
drug rebate statute, and regulations (except those regulations or 
portions thereof that have been withdrawn).

Reasonable Assumptions

    Comment: We received one comment asking if the proposed regulation 
was designed to change the reasonable assumption option provided to 
manufacturers in the AMP final rule. The commenter went on to request 
that CMS confirm that manufacturers' reasonable assumptions may include 
assumptions based on the current AMP regulations to the extent that 
those

[[Page 69594]]

regulations do not appear inconsistent with the statutory changes.
    Response: We wish to remind manufacturers that they may not rely on 
regulatory provisions and language that have been withdrawn. Until a 
subsequent rule is issued and finalized, manufacturers should rely on 
section 1927 of the Act, as amended by the Affordable Care Act, and 
regulations (except those regulations or portions thereof that have 
been withdrawn).

Base Date AMP Recalculation

    Comment: A few commenters noted that CMS revised the language in 
the regulatory text of Sec.  447.510(c), pertaining to a manufacturer's 
recalculation of the base date AMP. One commenter suggested that CMS 
should take this opportunity to amend Sec.  447.510(c)(1) by removing 
the notation ``[OFR: Insert publication date of the final rule]'' and 
specify when these recalculations will be permitted in light of the 
evolving definition of AMP. Another commenter thought that the revision 
implied that manufacturers could submit revised base date AMPs on a 
product-by-product basis. A third commenter suggested that 
manufacturers be allowed a one-time restatement of AMP in order to have 
a more accurate comparison between base AMP and the current AMP.
    Response: As indicated in the proposed rule, CMS proposed 
conforming regulatory amendments to Sec. Sec.  447.510, 447.512, and 
447.518 as these sections made specific references to the provisions 
being proposed for withdrawal. It would have been inappropriate to keep 
these references to Sec. Sec.  447.504 and 447.514 since they would no 
longer exist in the regulatory text. By changing the references to 
section 1927 of the Act, CMS did not address whether manufacturers 
could restate base date AMPs. The reference to section 1927 of the Act 
merely replaces the references to the withdrawn regulatory text. As to 
the comment that CMS take this opportunity to replace the notation with 
the date when the recalculations would be permitted, while we 
appreciate the comment, taking such action would be outside the scope 
of the proposed rule.

Lagged Price Concessions

    Comment: We received one comment expressing confusion over whether 
the proposed rule, if finalized, would delete the regulatory language 
on the AMP rolling average methodology for lagged price concessions 
that currently appears as 42 CFR 447.510(d)(2). Specifically, this 
commenter questioned whether the proposed rule would delete all of 
current 42 CFR 447.510(d)(2) and replace it with a single sentence, or 
whether it is just the first sentence being replaced and the rolling 
average provision would remain intact. The commenter recommended that 
CMS retain the current rolling average provision in the regulations as 
this approach has worked well to date and is consistent with the 
Affordable Care Act smoothing process. The commenter further stated 
that during the first year under the new AMP definition, manufacturers 
would like confirmation from CMS that they may choose whether to blend 
pre-ACA lagged price concessions with post-ACA lagged price 
concessions.
    Response: We appreciate the commenter's concern about the 
methodology previously described in Sec.  447.510(d)(2) regarding the 
calculation of monthly AMP. We have decided to revise the first 
sentence of this paragraph as stated in the proposed rule and delete 
the remaining sentences. We will address this issue in future 
rulemaking.

Regulatory Impact Statement

    Comment: We received one comment regarding CMS' determination that 
this is not an economically significant rule. The commenter expressed 
concern that CMS indicated that the proposed rule will not have a 
significant impact on a substantial number of small entities. The 
commenter went on to share their view that withdrawing parts of the 
existing regulation will undoubtedly help maintain the economic 
viability of some community retail pharmacies, but remained concerned 
regarding CMS' implementation of the Affordable Care Act.
    Response: This final rule withdraws regulatory provisions that have 
been superseded by the Affordable Care Act. In light of the new 
provisions established by the Affordable Care Act, we do not expect 
that this final rule will have any significant economic effects on 
small business entities. Therefore, CMS continues to believe this is 
not an economically significant rule.

Issues Not Addressed in the Proposed Rule

    We received several comments on issues that were not addressed in 
the proposed rule. Many of the comments were in regards to the 
implementation of the Affordable Care Act. A summary of these comments 
is provided below. However, CMS does wish to clarify that while we 
appreciate the comments provided and recognize that the changes made by 
the Affordable Care Act are far reaching, the comments that follow are 
outside the scope of this proposed rule. CMS plans on issuing a 
proposed regulation addressing the Affordable Care Act provisions.

Effective Date of Affordable Care Act Changes to AMP and FULs

    Comment: One commenter indicated that manufacturers will have to 
implement changes to AMP calculations beginning in October 2011 rather 
than October 2010.
    Response: We wish to remind all interested parties, as noted in the 
``Background'' section of this final rule, that the new statutory 
definition of AMP went into effect as of October 1, 2010. Manufacturers 
should rely on the statute, as revised by the Affordable Care Act, in 
calculating AMP.

Implementation of New AMP Definition

    Comment: We received a number of comments regarding the changes the 
Affordable Care Act makes to the definition and determination of AMP. 
Several commenters expressed concern about the implementation of the 
new Affordable Care Act definition when CMS has yet to complete the 
rulemaking process. These commenters requested that CMS delay the 
implementation of the new requirements until such time as further 
guidance is provided. One commenter encouraged CMS to provide sub-
regulatory guidance prior to the issuance of regulations, while another 
commenter indicated that CMS should not issue sub-regulatory guidance 
as it could result in ongoing revisions to AMP calculations. This 
commenter stated that manufacturers should be provided the ability to 
make the necessary reasonable assumptions for AMP calculations until 
official regulations are published. Some commenters provided specific 
recommendations as to how CMS should define AMP, while other commenters 
encouraged CMS to seek stakeholder input as to how to interpret the 
statute regarding which entities are to be included and excluded from 
the calculation of AMP, as well as the planned implementation schedule. 
One commenter specifically requested that CMS ensure that PBM rebates 
be excluded from AMP. Another commenter requested that a smoothing 
process be implemented for discounts to minimize the potential 
fluctuations in AMP from month to month. One commenter stated that AMP 
calculations should be consistent with both Average Sales Price (ASP) 
and Non-Federal Average Manufacturer Price (Non-FAMP) for the VA.
    Response: While we appreciate these comments and suggestions, they 
raise

[[Page 69595]]

issues that we believe are outside the scope of the proposed rule and 
will not be addressed in this final rule. CMS does expect to issue 
proposed regulations addressing the Affordable Care Act provisions.

Federal Upper Limit (FULs)

    Comment: We received comments regarding the implementation of the 
Federal Upper Limit (FUL) requirements. Several commenters encouraged 
CMS to delay the implementation of the new FULs requirement for 
multiple source drugs until a more precise definition of AMP is 
available. One commenter specifically recommended at least a 60-day 
transition between the issuance of a final regulation to implement the 
Affordable Care Act and the effective date of such regulation. A few 
commenters wanted to ensure that CMS would provide clear guidance that 
a FUL will be calculated when three or more therapeutically and 
pharmaceutically equivalent multiple source drug products are available 
for purchase by retail community pharmacies on a nationwide basis. 
Several commenters recommended that CMS develop a methodology to 
determine when it would be appropriate to exceed 175 percent of AMP 
when calculating a FUL. One commenter suggested that CMS develop a 
formal mechanism to appeal FULs in certain cases. A few commenters 
suggested that CMS establish a process to permit more frequent changes 
in a FUL or the suspension of a FUL, if it were warranted.
    Response: This proposed rule does not address the implementation of 
the Affordable Care Act; and while we appreciate these comments, they 
raise issues that are outside the scope of the proposed rule and will 
not be addressed in this final rule. CMS does intend to issue a 
proposed regulation addressing the Affordable Care Act provisions.

Inhalation, Infusion, Instilled, Implanted and Injectable Drugs

    Comment: CMS received a number of comments regarding the statutory 
amendment passed by Congress in August 2010 as part of Public Law 111-
226 that addressed inhalation, infusion, instilled, implanted and 
injectable drugs that are not generally dispensed through retail 
community pharmacies. A few commenters stated that the Congressional 
intent of this amendment was to provide CMS with the authority to 
continue collecting rebates for these drugs that are not generally 
dispensed through a retail community pharmacy and was not intended to 
impact reimbursement to retail community pharmacies. Several commenters 
provided CMS with suggestions on how to define the phrase ``not 
generally dispensed.'' Others commented that manufacturers need 
interpretive guidance in determining which of these drugs are not 
generally dispensed by a retail community pharmacy. One commenter 
suggested that CMS publish a list of drugs that meet the statutory 
definition of inhalation, infusion, instilled, implanted and injectable 
drugs. A few commenters indicated that CMS should exercise its 
discretionary authority to increase the FUL of these drugs, while 
others commented that a FUL should not be calculated for these drugs 
under any circumstances.
    Response: While CMS appreciates these comments, the topic of 
inhalation, infusion, instilled, implanted and injectable drugs is 
beyond the scope of the proposed rule and will not be addressed in this 
final rule. CMS plans to issue a proposed regulation addressing these 
provisions of the Affordable Care Act.

340B Drug Prices

    Comment: CMS received several comments regarding the impact of the 
AMP calculation on the discounted drug prices that 340B covered 
entities receive. One commenter urged that CMS coordinate with the 
Health Resources and Services Administration (HRSA) with respect to the 
application of the new AMP definition to 340B price calculations and to 
ensure that the new definition of AMP is used to calculate 340B ceiling 
prices as HRSA uses AMP data to calculate the 340B drug prices. CMS 
received a few comments in regard to the relationship between 340B drug 
prices and the amendment to the statute regarding inhalation, infusion, 
instilled, implanted and injectable drugs. One commenter stated that 
calculating AMP for these types of drugs based solely on retail 
community pharmacies' prices would have had a devastating impact on 
340B discount prices of Factor Replacement Product (FRP) because only 
about 1 percent to 2 percent of FRP is distributed through retail 
community pharmacies. Another commenter stated that calculating AMP by 
taking into account discounts and rebates provided to non-retail 
pharmacies is important for 340B entities because the use of retail 
pricing alone would distort 340B price calculations.
    Response: While we appreciate these comments, the topic of 340B 
drug pricing is outside the scope of the proposed rule and therefore 
will not be addressed in this final rule.

Adequate Documentation

    Comment: CMS received several comments regarding the use of the 
phrase ``adequate documentation'' in Sec.  447.504(g)(1), which states 
that sales to wholesalers are to be included in the calculation of AMP 
unless the manufacturer has adequate documentation showing the drugs 
are subsequently resold to an excluded entity as specified in paragraph 
(h). A few commenters recommended that CMS reverse this provision and 
instead provide guidance to manufacturers that sales and discounts 
should be excluded from AMP calculations unless the manufacturers have 
adequate documentation to show that the sales and discounts fit the 
statute's definition of AMP. Other commenters expressed support for 
retaining the current language. One commenter claimed that this 
language has worked well to date in promoting stability of AMP 
calculations and is not inconsistent with new statutory provisions. 
This commenter further stated that this language poses no risk of 
creating adverse consequences for pharmacies that serve Medicaid 
beneficiaries and would be unlikely to decrease FULs inappropriately. 
Another commenter stated that the Affordable Care Act seems to remain 
silent on this issue and recommends that the current language remain in 
effect in future regulations. One commenter supports the current 
language as a better approach than requiring manufacturers to generate 
or purchase data necessary to calculate an AMP that includes wholesaler 
sales, only if resale to a retail community pharmacy is documented.
    Response: While we appreciate these comments, they are outside the 
scope of the proposed rule and therefore will not be addressed in this 
final rule, except to emphasize that Sec.  447.504, including paragraph 
(g)(1), is being withdrawn by this final rule.

Authorized Generics

    Comment: We received a few comments requesting CMS provide 
clarification regarding manufacturers with authorized generics. Two 
commenters requested that CMS confirm that transactions related to the 
transfer of authorized generics to secondary manufacturers that resell 
to community pharmacies are to be treated as wholesalers and therefore 
should be included in AMP. Another commenter stated that with the 
broader definition of wholesaler it is unclear whether authorized 
generics manufacturers would be considered in AMP.
    Response: These comments are outside the scope of the proposed rule

[[Page 69596]]

and will not be addressed in this final rule. However, CMS does wish to 
clarify that while the definition of ``wholesaler'' as defined in Sec.  
447.504 of the AMP final rule will no longer exist, the Affordable Care 
Act does provide a new definition of wholesaler. Therefore, in the 
absence of regulatory guidance, manufacturers should refer to the 
statute, as revised by the Affordable Care Act. CMS does intend to 
issue a proposed regulation addressing the changes made by the 
Affordable Care Act.

Definitions of Retail Community Pharmacy and Wholesaler

    Comment: We received comments regarding definitions that were 
revised or introduced in the Affordable Care Act. One commenter noted 
that an accurate definition of ``retail community pharmacy'' is 
critical to the implementation of the provisions within the Affordable 
Care Act. Another commenter recommended that CMS provide a table 
providing a specific breakdown of what is considered to be a retail 
community pharmacy. A few commenters indicated that CMS should revise 
the definition of ``wholesaler'' to be consistent with the new 
statutory definition of wholesaler. One commenter stated that an 
accurate definition of ``wholesaler'' is critical to the implementation 
of these new provisions.
    Response: We appreciate these comments; however, they are outside 
the scope of the proposed rule and will not be addressed in this final 
rule. In the absence of regulatory guidance, interested parties should 
rely on the statute, as revised by the Affordable Care Act. CMS intends 
to issue a proposed regulation addressing the changes made by the 
Affordable Care Act.

Other Comments

    Comment: We received comments requesting guidance on Line Extension 
Drugs, Medicaid Managed Care Organizations (MCOs), and State invoices 
to manufacturers. One commenter requested guidance on the 
implementation of the new requirements for calculating rebates for line 
extension drugs. This commenter noted that Release 81 provided guidance 
on how to perform the calculation and price comparison but it did not 
provide a useful interpretation of the term. Another commenter 
requested guidance regarding the implementation of the new statutory 
requirement, which requires that rebates to be collected on 
prescriptions paid by Medicaid MCOs. The commenter stated that 
companies will need data from CMS on the number of Medicaid 
beneficiaries enrolled in MCOs with pharmacy benefits to be able to 
verify prescription data. Additionally, this commenter had concerns 
regarding MCOs and 340B drugs and stated that the new statutory 
requirements for rebates on prescriptions paid by Medicaid MCOs creates 
the likelihood that double discounts could be imposed on manufacturers 
unless CMS makes it clear that such utilization may not be reported to 
Medicaid. One commenter raised concerns with a manufacturer's 
obligation to pay rebates on claims that are paid primarily by a non-
Medicaid payor, where Medicaid is a secondary payor. This commenter was 
particularly interested in having CMS clarify that States may not 
invoice a manufacturer for more than 100 percent of the amount paid by 
the State associated with a drug claim.
    Response: While we appreciate the comments, they are outside the 
scope of the proposed rule and will not be addressed in this final 
rule. However, CMS does wish to remind all interested parties that in 
the absence of regulatory guidance, they should refer to the statute as 
amended by the Affordable Care Act.

Retail Price Survey and Publication of AMP Data

    Comment: We received one comment regarding the retail price survey 
which indicated that it would be important for CMS to only publish 
weighted average Retail Price Survey (RPS) data for multiple source 
drugs subject to the FUL and only include reimbursement paid to 
community retail pharmacies. Another commenter recommended that CMS 
review several months of the weighted AMP data before making it public.
    Response: The issues raised in these comments are outside the scope 
of the proposed rule and will not be addressed in this final rule.

IV. Provisions of the Final Regulations

    This final rule incorporates the provisions of the September 3, 
2010 proposed rule.

V. Collection of Information Requirements

    This document does not impose any new reporting, recordkeeping, or 
disclosure requirements. The burden associated with the existing 
reporting requirements contained in Sec.  447.510(a) is currently 
approved under OCN: 0938-0578.

VI. Regulatory Impact Statement

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999) and the Congressional Review 
Act (5 U.S.C. 804(2)).
    Executive Order 12866 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). This 
regulatory action withdraws those regulatory provisions that have been 
superseded by the Affordable Care Act. In light of the new provisions 
established by the Affordable Care Act, we do not expect that this 
final rule will have any significant economic effects. Therefore, this 
final rule is not considered an economically significant rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has a significant impact on a 
substantial number of small entities. For purposes of the RFA, small 
entities include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Most hospitals and most other providers and 
suppliers are small entities, either by nonprofit status or by having 
revenues of $7.0 million to $34.5 million in any 1 year. Individuals 
and States are not included in the definition of a small entity. We are 
not preparing an analysis for the RFA because the Secretary has 
determined that this final rule will not have a significant economic 
impact on a substantial number of small entities.
    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 for Medicare payment regulations and has fewer than 
100 beds. We are not preparing an analysis for section 1102(b) of the 
Act because the Secretary has determined that this final rule will not 
have a significant impact on the

[[Page 69597]]

operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2010, that 
threshold is approximately $135 million. This rule will not have 
consequential effect on State, local, or tribal governments or on 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. Since this regulation does not impose any costs on State 
or local governments, the requirements of Executive Order 13132 are not 
applicable.
    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.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 447--PAYMENT FOR SERVICES

0
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 Drugs

0
2. Section 447.502 is amended by removing the definition of ``multiple 
source drug.''

Sec.  447.504  [Removed and reserved]

0
3. Section 447.504 is removed and reserved.

0
4. Section 447.510 is amended by--
0
A. Republishing paragraph (a) introductory text.
0
B. Revising paragraphs (a)(1), (c)(2)(i), and (d)(2).
    The revisions read as follows:

Sec.  447.510  Requirements for manufacturers.

    (a) Quarterly reports. A manufacturer must report product and 
pricing information for covered outpatient drugs to CMS not later than 
30 days after the end of the rebate period. The quarterly pricing 
report must include:
    (1) AMP, calculated in accordance with section 1927(k)(1) of the 
Social Security Act.
* * * * *
    (c) * * *
    (2) * * *
    (i) A manufacturer's recalculation of the base date AMP must only 
reflect the revisions to AMP as provided for in section 1927(k)(1) of 
the Social Security Act.
* * * * *
    (d) * * *
    (2) Calculation of monthly AMP. Monthly AMP should be calculated 
based on section 1927(k)(1) of the Social Security Act, except the 
period covered should be based on monthly, as opposed to quarterly AMP 
sales.
* * * * *

0
5. Section 447.512 is amended by--
0
A. Removing and reserving paragraph (a).
0
B. Revising the introductory text of paragraph (b).
0
C. Revising paragraph (c).
    The revisions read as follows:

Sec.  447.512  Drugs: Aggregate upper limits of payment.

    (a) [Reserved]
    (b) Other drugs. The agency payments for brand name drugs certified 
in accordance with paragraph (c) of this section and drugs other than 
multiple source drugs for which a specific limit has been established 
must not exceed, in the aggregate, payments levels that the agency has 
determined by applying the lower of the--.
* * * * *
    (c) Certification of brand name drugs.
    (1) The upper limit for payment for multiple source drugs for which 
a specific limit has been established does not apply if a physician 
certifies in his or her own handwriting (or by an electronic 
alternative means approved by the Secretary) that a specific brand is 
medically necessary for a particular recipient.
    (2) The agency must decide what certification form and procedure 
are used.
    (3) A check-off box on a form is not acceptable but a notation like 
``brand necessary'' is allowable.
    (4) The agency may allow providers to keep the certification forms 
if the forms will be available for inspection by the agency or HHS.

Sec.  447.514  [Removed and reserved]

0
6. Section 447.514 is removed and reserved.

0
7. Section 447.518 is amended by revising paragraphs (b)(1)(i) and 
(b)(2) to read as follows:

Sec.  447.518  State plan requirements, findings and assurances.

* * * * *
    (b) * * *
    (1) * * *
    (i) In the aggregate, its Medicaid expenditures for multiple source 
drugs are in accordance with the established upper limits.
* * * * *
    (2) Assurances. The agency must make assurances satisfactory to CMS 
that the requirements set forth in Sec.  447.512 of this subpart 
concerning upper limits and in paragraph (b)(1) of this section 
concerning agency findings are met.
* * * * *

    Authority:  (Catalog of Federal Domestic Assistance Program No. 
93.778, Medical Assistance Program).

    Dated: October 20, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 3, 2010.
Kathleen Sebelius,
Secretary.
[FR Doc. 2010-28649 Filed 11-9-10; 4:15 pm]
BILLING CODE 4120-01-P
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