[Federal Register Volume 69, Number 3 (Tuesday, January 6, 2004)]
[Rules and Regulations]
[Pages 508-514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-32329]


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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.

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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.

[[Page 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 Sec.  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.

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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 Sec.  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 non-profit 
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 Sec.  447.534(h). These comments and our responses are summarized 
below:

Recordkeeping Requirements at Sec.  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.

[[Page 510]]

    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

[[Page 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 Sec.  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:
    [sbull] The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    [sbull] The accuracy of our estimate of the information collection 
burden.
    [sbull] The quality, utility, and clarity of the information to be 
collected.
    [sbull] 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 Sec.  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

[[Page 512]]

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: [email protected]; 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

[[Page 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.

0
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

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 Outpatient Prescription Drugs Under Drug 
Rebate Agreements

0
2. In Sec.  447.534, paragraph (h)(1) is revised to read as follows:

[[Page 514]]

Sec.  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